Florida Estate Planning, Probate and Asset Protection

LLC Planning For Your Business and Family

I am frequently asked by small business owners if they should have a separate LLC or multiple LLCs for their assets. The answer is “it depends” on what your objective is for considering this.

 

When it comes to understanding your estate and planning for it, the key concept is ownership. How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones?

When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs.

I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLC depends a great deal on what you hope to accomplish. No surprise there.

However, to many it’s simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business.

This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles.

It’s not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway.

Whether it truly is right for you will take some thought and competent counsel at your side. In the end, it all comes down to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) “How to Determine if a Separate LLC is Right for Your Assets”

 

Business Succession Planning Protocol

"The challenge for many small family-owned businesses in succession planning lies in choosing a successor and deciding how the business will be governed when you are not there."

When someone starts talking about “business planning,” too often they just mean getting it off the ground or, if they have high aspirations, how to make it fly once airborne. Of course, “business planning” also is about keeping the business aloft through turbulence (e.g., bad markets) and even should the pilot-in-command become unable to fly (e.g., retirement, incapacity, or death).

In the end, a proper business plan for any small business, but especially for a family business, always entails some form of succession planning.

I just ran across a Forbes article that ran a few months ago, yet is forever timely on this subject. This article illustrates just how important coordinated succession planning and estate planning are in the context of a family-owned business.

If you run such a businesses, whether it’s a small shop or a large company, oftentimes your personal wealth and the wealth of the family are tied up with the business itself and your ability to keep running it. [Not to mention any lines of credit your signature and personal assets may secure.] What happens when you fall ill or pass away?

“That day” is not always a day you can see coming or you can delay.

The biggest hurdle to any succession plan is planning for your own successor. Let’s face it, running a business is tough and jumping on board while the carousel is moving can be a dicey proposition.

While the Forbes article has some specific advice, undoubtedly it will take measured thought and time to form and implement an effective succession plan. Then again, there also must be the contingency of deciding simply to sell the business. Either way, whether you ultimately continue the business or sell it, careful planning is a must.

In many ways, it’s not just for your own sake or for the sake of your family that the business has to be protected with proper planning. A business means employment for many people and often wealth for a community. It’s timely news, then, to find that small businesses created 55,000 new jobs this past November.

Oh, if no one has thanked you lately for being a business owner then by all means, then let me say “thank you.”

Reference: Forbes (October 12, 2011) “Identifying a Successor for Your Family-Owned Business”

 

SMALL BUSINESS / BUSINESS SUCCESSION

"The sale of a business is usually a big event in the owner’s life, financially, emotionally, and in other respects…taxes are key to business sales, but who pays them?"

Some entrepreneurs build up and sell a dozen or more businesses during their lifetimes, but for most, their one and only business exists as the product of many years of blood, sweat, and tears. Selling the business – whether to family members or others – is something most business owners contemplate at some time during their ownership.

Before you begin the process of selling your business, you should thoroughly explore the tax ramifications, as they can greatly impact your final “take away’ from the deal. In fact, these are questions you may want to consider before forming your business, especially if you hope to one day sell and reap gains from your years of effort.

Consider this example from a recent article in Forbes: if a C-corporation sells its assets for $5 million, with a $2 million basis, the $3 million gain will be taxed to the corporation at up to 35 percent, leaving only about $3.9 million for distribution to shareholders. And don’t forget that when the shareholders receive the distribution, they must pay tax at their individual rates. Of the $3.9 million distributed to them, how much tax they pay depends on their basis in their shares and other variables – but there will be two levels of taxation.

You can learn more about business succession issues in the Business Succession Practice Center on our website. While you’re there, be sure to sign up for our free monthly e-newsletter to stay abreast of news as it affects you and your estate.

Reference:  Forbes (July 26, 2011) “But Who Pays Tax on Business Sale?”

 

ESTATE PLANNING / BUSINESS SUCCESSION

From Forbes.com (June 1, 2011) “It’s Your Baby – Now Say Goodbye”

 

"The Achilles Heel of all entrepreneurs (save serial entrepreneurs): Cutting ties with the business you built."

 

If you’re a business owner, you may be enticed by the idea of selling your business and walking away with the cash … but chances are you’ll have a hard time cutting ties with the business you built.

A recent article on Forbes.com tells the story of a business owner of 25 years who finally decided to sell his business, since his sons had no interest in running it. He spent hundreds of thousands of dollars and a year of his time prepping to sell, but walked away at the last minute. Forbes calls this “seller’s remorse,” and it’s a fairly common ailment of successful entrepreneurs.

According to Forbes, the problems entrepreneurs suffer when selling their businesses stem primarily from what psychologists call “locus of control issues.” In essence, someone who has, for most of their career, initiated all of the action, finds themselves in the uncomfortable position of being passive and reactive to the strategies and directives of others.

Authentic entrepreneurs are unique creatures, business geniuses that defy convention by thinking less about wealth and rewards than challenge, wining and making a mark on society. If you are a business owner considering selling your business, you may be well-advised to come to terms with the idea before you dive into the process. You will be ceding control of your business, in exchange for cash. Best to wrap your mind around that issue sooner rather than later.

You can learn more about business succession planning, and the unique challenges facing business owner on our Business Succession Practice Center on our website.  Call us for our Business Owner Blues report at 407-661-1177

 

Link: http://blogs.forbes.com/stevenberglas/2011/06/01/entrepreneurs-and-their-achilles-heels/

 

 

 

 

 

ESTATE PLANNING / INSIGHTS ON WEALTH

 From US TRUST (April 19, 2011) “US Trust Insights on Wealth and Worth”

“We have found a significant dichotomy between clients we talk with, who tell us that intergenerational wealth transfer is the single most important issue on their minds, and a large segment of high net worth population we surveyed, who are not taking action and therefore leaving the legacy of their life’s work to chance.” – Keith Banks, President, US Trust

 

If you are a Baby Boomer who has worked hard, accumulated significant assets, support charitable causes, and plan to continue working through “retirement,” you are not alone! And you won’t be particularly surprised by the findings of a recently released survey by US Trust: Insights on Wealth and Worth. The survey was conducted earlier this year, with 457 high net worth and ultra high net worth individuals, with $3 million or more in investable assets. The survey found a distinct generational mindset among the wealthy – many of whom are Baby Boomers, self-made, first generation wealthy who achieved financial success on their own.

You are probably familiar with some of these insights found by the survey:

 

• Nearly half of these wealthy individuals plan to continue working in “retirement,” many starting a second career or new business.
• Many also want to be able to travel – remember my post last week about “going mobile” with your business, perhaps even into retirement?
• Many wealthy Americans want to give back to their communities and support charitable causes, and they may need professional legal advice to fulfill those ideals.
• Few have the type of comprehensive estate planning in place that matches the complexity of their estate, their finances and their estate planning goals.
  
  

That last insight, about few people having the type of comprehensive estate planning they really need, may come as a surprise to you – or even to US Trust – but not to me. I see this in my practice every day. Just because you have a simple will in place, or believe the federal estate tax will not affect you, does not mean you have adequate met your estate planning needs. Some common “gaps” that turned up in the US Trust survey include:

• No living will or health care directive
• No durable financial power of attorney
• No revocable living trust
• Inadequate planning for life insurance
• No charitable planning, despite charitable intent
• No written plan for the distribution of personal property
• No business succession plan, in fact only three percent of business owners had a business succession plan in place

 

If you saw yourself in the first paragraphs of this post, you likely saw yourself again in the last few. If you don’t take action, then you are, as US Trust President Keith Banks said, “leaving the legacy of (your) life’s work to chance.”

You can download the full survey report from the US Trust website.

 

SMALL BUSINESS / SUCCESSION PLANNING

From The New York Times (April 22, 2011) “Is Now the Time to Give Away the Business?”

 

"Now is a fantastic time to give shares of a business to family members."

 

According to most tax experts, now is a fantastic time to give shares of a business to family members. As you may well know (if you follow this blog) 2011 and 2012 are have unique in terms of estate and gift tax planning. As one tax attorney was quoted in a recent New York Times article, “We are in the prime transfer tax situation.”

However, having said that, there’s an old saying about not letting the tax tail wag the dog. While now may be the prime opportunity, tax-wise, to give away share of the family business to the next generation – a bigger question is whether you should give away the family business at all. While it may seem like both a loving gesture and a way to ensure the longevity of the enterprise, gifting can be the worst possible option for both the business and the family that owns it.

Tom Deans, author of Every Family’s Business, is a critic of what he calls “the longevity myth” that surrounds family-owned businesses. He says that giving away a business is both corrosive and dangerous. His advice? Your family business ought to be sold – whether to the next generation or to an outside buyer.

 

“It’s not about denying the next generation anything,” Mr. Deans said. Rather it’s about preserving what he considers to be the family’s true legacy — not the business itself but the two most precious things that the business creates: substantial personal wealth and the values required to nurture the next generation of entrepreneurs.

 

            In today’s tough economic times, it may make sense to heed Mr. Deans’ advice. For most small business owners, their business is their estate. You are well-advised to discuss your situation with a qualified professional before deciding whether to gift your family business to the next generation, sell it to them through some type of structured arrangement, or sell it outright to a third party.

 

Link: http://boss.blogs.nytimes.com/2011/04/22/is-now-the-time-to-give-away-the-business/

 

 

BUSINESS EXIT & SUCCESSION PLANNING

     How small-business owners manage this process (retiring from or exiting the business) is going to have a tremendous impact on their ultimate level of wealth. But making the decision may seem less overwhelming if you see it through the lens of the old Wall Street ratings systems: sell, hold or buy.

The credit crunch is hitting business owners on many levels, including one they may not have seen coming. According to the New York Times, many small business owners who had hoped to sell their businesses and retire on the proceeds are finding their plans must be delayed, if not abandoned. The problem is not so much that their businesses have lost value, but rather that banks are reluctant to lend money to prospective buyers.

There are options, but business owners need a well-reasoned approach to sift through them. Using the old Wall Street ratings system, consider whether it would be best to

• Sell Now -  perhaps taking less money, but enjoying a currently low capital gains tax rate;
• Hold Now  - run the business for a few more years and let the economy recover, but be careful you don’t “take your foot off the gas” and let your business slide (and devalue); or
• Buy Now – invest in the business, or find investors to provide the financing for a sale.

To learn more about business succession and exit planning, visit the Business Succession Planning Center on our website.