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To plan your future, work backward to move forward

Estate planning is key to securing your business

Karen Jessey //March 18, 2019//

To plan your future, work backward to move forward

Estate planning is key to securing your business

Karen Jessey //March 18, 2019//

Business owners are often caught in a seemingly never-ending cycle of decisions to make and things that need to get done. Jumping onto a rapidly spinning carousel can be daunting, so sometimes it’s easier to busy ourselves with other things. Planning for the future of your business and executing those plans is the only way to slow the carousel down and turn the infinite circle into a direct path to your goals.

If you’re uncertain about where to jump in, start at the end – with your estate plan. All business owners need an estate plan. Creating or updating your estate plan is a specific project with a beginning and an end, but it will take you one step closer to your successful future.

A successful estate plan achieves three important personal goals:

  1. Financial security for the decedent’s heirs
  2. The decedent (rather than the state) chooses who receives his or her estate.
  3. Estate tax minimization reduces the government’s take leaving more funds for heirs.

Next, a successful business exit plan achieves three important goals for the business owner:

  1. The business sale or transfer provides the amount of income the owner and owner’s family need after the owner’s exit.
  2. The owner chooses his or her successor (children, key employees, co-owners or a third party).
  3. Income tax minimization maximizes the amount of cash in the departing owner’s pocket.

Thinking of exit and estate planning in tandem brings a business owner’s entire picture into focus:

For example, when you update your estate plan, you’ll most likely revisit your expectations for your family during your lifetime and beyond. You’ll review and update the value of your business to see if it will support your plans. In securing an estimate of value, you possess a piece of information that is critical to both your estate plan and your ultimate exit plan.

Estate planning gives you a valuable perspective on your future. Start at the end and work backward.

  • If something happens to you before your ideal business exit can occur, how will you provide your family with the same income stream they would have enjoyed if you had?
  • If you hold onto your business until well into your golden years, does your current plan take the long-term issues into account? How will you make sure that your business retains and increases its previously determined value?
  • If you plan to transition some or all of your ownership in the business to one or more children, does your estate plan adequately address your preferences for the business-active children as well as those who are not involved in the business, or will they fight it out after you are gone?
  • If you die before you exit the business, are you certain your family will still receive the full value of the business? (This question is especially important to answer if you are the sole owner. Sole owners are unlikely to have a buy-sell agreement because there are no remaining co-owners to purchase and/or continue the business.)

Your estate plan can manage these issues, but does it?

It is worth repeating that you must devote the same energy and analysis to lifetime transfers (benefiting you) as you do to a transfer occurring at your death (benefiting your family). Since both planning your exit from your business and planning your exit from this life are based on the same premises, it can be relatively easy to develop a consistent outcome.

There isn’t one right answer to whether estate planning or exit planning is more important. In the end, you must take action on both fronts since a failure to act in either creates lasting problems not just for you, but for your business and for your family. Start with the end by deciding what role your business will play when you are gone. Then work your way backward to where you are today and how that compares to where you need to be. Then work forward and your exit plan will start to take shape.

The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this article is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

Article presented by Karen Jessey, ChFC®, CLU®, CFP®, RCIP®, CExP™, [email protected], a Member of BEI’s International Network of Exit Planning Professionals™. ©2018 BEI

Registered Representatives and Financial Advisors of Park Avenue Securities LLC (PAS), 6455 S Yosemite Street Suite 300 Greenwood Village CO 80111. Securities products/services and advisory services are offered through PAS, a registered broker-dealer and investment advisor, 303-770-9020. Field Representatives, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Strategic Wealth Partners is not an affiliate or subsidiary of PAS or Guardian. 2019-76387 (exp 3/2021)

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