South Florida FPA Conference 2017

Business Succession Planning

Presenter: Frederick H. HoopsVice President-Senior Wealth Planner

Comerica Wealth Management

Welcome

o The Importance of Succession Planning

o Business Succession vs. Management Succession

o Options as a Business Owner

o Techniques for Gifting a Business

o Planning for Life after Owning a Business

Question of the Day

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It is estimated that some 24 million Americans own a closely-held business.

What becomes of a company when its owner(s) step down or are no

longer around to run it?

Reality Check

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◦ 88% of current family business owners believe that the same family will control their business in five years, but statistics don’t agree:

Source: Family Business Institute

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Succession Planning - It’s More Than Just Saving Taxes

7Comerica does not provide tax advice, please consult your tax advisor regarding your specific situation.

o Provides financial security:o for the owner after retiremento for the family in the event of a

premature death or disability

o Address the issue where some children would like to work in the business and others would not

o Limits ownership to only those individuals acceptable to all owners

o Considers transfer of ownership and the transfer of management

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Steps to Create Successful Management Succession

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o Identify high-potential individuals and allow time for development

o Provide feedback on a regular basis

o Look for training and development opportunities

o Provide opportunity to demonstrate leadership skills

o Let potential management successors know what you are thinking in terms of taking over the business

o Create mechanisms that will encourage key employees to want to stay involved in the business

Your Options as a Business Owner

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o Sell your business during your lifetime

o Have your estate sell your business after you’ve departed

o Transfer your business to your heirs during your lifetime

o Transfer your business to your heirs after you’ve departed

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oBattling the gift, estate, and income tax is a significant concern for many business owners when gifting to their heirs during life

oTechniques for gifting your businessto your family in a tax-efficient manner:

• Family limited partnership (FLP)

• Limited liability company (LLC)

• Grantor retained annuity trust (GRAT)

• Intentionally defective grantor trust (IDGT)

Gifting a Business to Your Heirs During Your Lifetime

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Comerica does not provide tax advice, please consult your tax advisor regarding your specific situation.

Issues in Transferring Your Business

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o Personal or familial conflicts

o Management team capabilities / loyalty

o Business acumen of heirs

o Financial implications of succession planning

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Proposed Treasury Regulations

o Significant changes to the valuation of interests in family-owned business entities is possible in 2017o May limit the use of discounts that currently

minimize taxeso Estateo Gifto Generation-skipping taxes

o May change the treatment of transfers of interest in a family controlled entity that occur within 3 years of a decedent’s death

o IRS to re-determine the value of transferred interest

o Additional estate tax may be the resulto May limit certain planning opportunities with

attribution of ownership ruleso Recommendation: Identify any steps that may

be taken before rules are finalized

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◦Succession plan must be in writing and up-to-date

◦Trained management team

◦Cash flow analysis to facilitate better decision-making

◦Selection of next owner(s)

◦A funded buy/sell agreement

◦Understanding of the value of the business

◦Work with a knowledgeable team (CPA, Attorney, Wealth Planner)

◦Plan for life after owning a business

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Increasing the Odds of a Successful Transfer

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What May Happen Without a Buy-sell Agreement

o Family members may be injured and/or perplexed by the loss of income and net worth earned by the business

o The value of the business may decline while waiting for a buyer to appear

o The business may be forced to sell assets upon the occurrence of a triggering event in order to redeem the interest of a departing partner/member/shareholder

o Your partners/members/shareholders may lose the good will tied to the business during the period of transition

o Creditors may become worried and demand immediate payment because there is no continuation plan in place if something were to happen to you or your other partners/members/shareholders

o Debtors may become emboldened and not pay if you or your other partners/members/shareholders were no longer involved in the business

o Disputes could arise between partners/members/shareholders concerning the value and terms of any purchase following a triggering event

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Participating in the Business after Transition

A significant portion of business owners plan to participate in the operations of their company after transitiono 38% intent to be “special advisors”

o 7% intend to remain on board as Senior Executives

o 29% don’t know what their role will be

o 24% plan to have no attachment

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Comerica Bank. Member FDIC.

Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Please consult with your tax and legal advisors regarding your specific situation.

Presentation not for distribution. Information shared and included in this presentation was prepared by Comerica Wealth Management for this presentation and may not be used without permission by Comerica Wealth Management.

The views expressed are those of the presenters and are subject to change without notice.

Disclosure

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