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The Dispatch/Maryland Coast Dispatch
November 29, 2013
MONEY SENSE
Family Business Transfer Tips
OCEAN CITY – For most busi- preparation – expenses you'll have ness owners, retirement is either a to start covering yourself. subject they welcome, or the last Even after receiving a lump sum thing they want to think about. If from a sale, many former business you're looking forward to that day, owners can stay involved and earn you've probably already started income by serving on the board of preparing to move on from your directors or consulting. You might business. If you're not, bear in mind even continue in day-to-day operathat there are real advantages to tions in a reduced but vital role — beginning to prepare for it now. for example, serving clients who've Doing so can increase the odds of, been with the company for years and choices for, making a proactive and are used to working with you. tax-efficient transfer and helping set If you own an office building or your company's path over other physical assets, anoththe course of time, says Eric er option for generating reS. Williams, director, Merrill tirement income is to retain Lynch Personal Wealth and those assets and lease or Retirement. rent them back to the busiTaking the time to plot ness. Astrachan recomyour company's future can mends that such arrangemean leaving on your own ments be agreed upon beterms. It also puts you in a forehand and spelled out better position to retain conclearly in the formal transfer trol, at least during any tran- BRIAN SELZER or sale agreement with the sition period, so that proceeds from new majority owners. That should your business – which in many cas- also be the case if you're turning the es is your biggest asset – have the business over or selling it to other greatest potential to provide you family members. with strong, steady retirement inHow can you structure the transcome. fer? If you plan to transfer the busiAsk yourself these questions as ness to family members or longyou begin to create a transfer plan time employees, rather than sell to that can meet your needs. an outside buyer, weigh these What's your company's real val- options. Each has its own advanue? Many privately held companies tages. reflect the people who've built them. Consider transferring the busiIn some cases, the owner is the ness as a gift, and drawing an business. As you assess your com- income from the new owners. The pany, Williams suggests beginning 2013 tax law made permanent the with a simple test: Ask yourself, 'If I $5 million lifetime gift exemption – left the company in the hands of my $10 million for couples – that's ademployees for three months, would justed annually for inflation. (It's it be worth roughly as much when I worth $5.25 million in 2013.) That came back?' If the answer is no, gives business owners consideryour heirs are likely to face signifi- able latitude to transfer a part or all cant obstacles in keeping the busi- of the company as a gift. You may ness going, and the price an out- owe taxes on amounts exceeding sider may be willing to pay may be the exemption, but once the busimuch lower as a result, Williams ness is out of your hands, it's no points out. longer part of your estate and future But if you conclude that the com- growth of the company won't subpany is viable without you there to run ject your estate to capital gains taxit, your next step is to get an accurate es. You might sell the business by valuation of its worth, says Joe Astrachan, executive director of the Cox providing financing assistance. You Family Enterprise Center at Ken- may choose to sell the business to nesaw State University in Georgia. heirs – or an outside buyer – by That's essential not just for a sale but lending them the money through a also in consideration of taxes and to note sale, which allows the buyer to help you gauge how much retirement pay you back directly. You could execute a partial sale income you might expect from a transfer. A professional valuation and while retaining a portion of business tax expert can help you look past assets and income. You'll pay capiyour emotional attachment to the tal gains on any profit from the sale, company, gauge its true value as well but you'll also get a steady income as the market for such a business, from rent or lease of office space or other assets. and arrive at a realistic number. What are your retirement income Whatever choice you make, a needs? If you're planning on selling smooth transition can be the crowning your business, Williams advises legacy of the years of care and effort that before you start any negotiat- you've poured into your business. It ing, you determine how much in- can also leave you with income to come you'll need to support your support your life's next act while in lifestyle and retirement goals, and some situations keeping you involved what portion of that will come from in a business you love. And you can the sale of the business, as com- have the satisfaction of knowing that pared with your investments and your vision has the potential to live on other assets. Keep in mind, too, that for generations to come. merely matching your current salary – Brian Selzer in retirement may not be enough if Special To The Dispatch the business has also been paying (A Merrill Lynch Wealth Managefor things like health insurance, car ment Advisor who can be reached at leases, club memberships and tax 410-213-8520.)
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