Exit Planning: Estate Planning

As a reminder, this blog series is based on The Seven Step Exit Planning Process created by the Business Enterprise Institute (BEI).

After several blog posts, we’ve reached the final post in our exit planning blog series. So, what does the final component of the exit planning process have in store for you? Personal wealth and estate planning!

As a note, just because this is the last step in the process, it doesn’t mean this shouldn’t be considered when you’re actually out of the business. In fact, the earlier business owners start this step, the more benefits they may receive.

It’s no surprise that the IRS lays claim to a business owner’s wealth, especially when it comes to estates. However, there are other beneficiaries a business owner might want this wealth to go to. As a business owner, you will want to have a wealth transfer method that will pass on the wealth with minimal interruption from that pesky IRS.

So, how do you go about keeping the IRS interruptions to a minimum? According to the BEI, focusing on the following three issues can help ensure success in the wealth preservation planning process.

  1. Money for Yourself – To make decisions regarding how much money should be left (to children, charities, etc.), you must first decide how much wealth you want to keep for yourself after exiting the business. This can be determined by looking at the objectives and goals you set in the beginning of your exit planning process.
  2. Money for Kids – The idea of leaving money to children after the sale of the business is a common, but sometimes difficult one. It’s often hard to decide, given the success of the business, how much is too much or too little to leave to children. It’s important to remember that children usually do not receive the full amount up front. Rather, it is transferred through trusts or over time.
  3. Minimize Tax Impact – With tax outcomes always fluctuating due to governmental policies and procedures, it’s hard to make a solid plan and know exactly how much money will be left untouched. To try to keep the amount of money taxed to a minimum, business owners (and their advisors) must be proactive.

A few other pointers for estate planning…

  • Estate Planning Preferences –Having your preferences documented can make the estate distribution process go a lot smoother. Consider including how you want personal property distributed, any personal representatives you may have, donations to charities, how the estate will be distributed, trust designs and power of attorney, to name a few.
  • Personal Lifetime Wealth Management – Understanding the decisions and actions that must take place to manage your personal wealth is crucial in making sure you obtain the highest amount upon leaving the business. It is important to consider spending strategies, estimated income and retirement, investment strategies and possible insurance strategies.
  • Wealth and Estate to Family – More than likely, you have decided to leave some part of the estate to family members, be it your children, spouse or both. Things to consider for your family include insurance proceeds, timing of income stream, transfer of assets and estate allocation preferences.
  • Protection of Personal Assets – Protecting your personal assets can enhance security of your assets against any claims against your company. Such assets to be considered may be loans to the company, collateral, ownership and rights and lifetime transfers.

Personal wealth and estate planning can help ensure you have a solid exit plan in place that is ready for whatever life may throw at you next.

In closing, we want to remind you that exit planning is a crucial step to ensure your business continues on long after it has left your hands. If done correctly, having a solid exit plan in place can help business owners be sure their dreams and goals are reached.

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