Coordinate Your Overall Financial Plan

Family business owners face myriad problems, solutions, suggestions and decisions over the course of their careers. The trick to successfully navigating this obstacle course is to have a plan that you have faith in and to stick to the plan, giving a little slack for amendments down the road.

Planning for family business owners includes many facets: income tax, property tax, estate, retirement, financial, insurance, creditor protection, elder care, succession, charitable and more all go into planning for a lifetime of wealth accumulation and transfer of family business ownership. Because these plans may involve many advisors, hours of attention and constant updating, it is difficult to coordinate everything. However, coordination is critical so that each plan makes economic sense.

Coordination Is Key
Suppose that you have several million dollars in your pension and Individual Retirement Account plans. Your financial planning advisor informs you that with income, estate and excise taxes, your heirs are likely to see only 25% or so of your pension assets upon your death. You immediately begin looking at everything from the purchase of life insurance to the possibility of taking early withdrawals from your plans. However, to make the decision from a retirement planning standpoint alone ignores the fact that this decision is affected by your estate plan as it is and as it should be, and your overall goals and objectives.

Anticipate Future Events
Another example would be succession planning. Succession planning has personal as well as estate and income tax implications. It may be the appropriate time to transfer ownership of a company to an heir from a personal standpoint but from a tax standpoint, it may cost you hundreds of thousands of dollars.
Suppose a family business owner is in his 80s and in poor health. The owner convinces his daughter to leave her current profession and come to work in the family business. The daughter may say that she will not join the business unless she owns it. In a bind, the family business owner agrees to transfer ownership to his daughter immediately by gift as an inducement.

Having done so, the family business owner’s low basis in the company transfers to his daughter, who now owns the business but has very low basis. The family business owner dies soon thereafter and because the company had not appreciated significantly from the date of gift to the date of death, no transfer tax benefit had been gained by making the gift.

Several years later the daughter finds a buyer for the business and sells it. She is now faced with a large capital gain that she would not have had had her father died owning the stock and left it to her via his will.

The capital gains tax that could have been avoided now has a major effect on the net after-tax sale proceeds to the daughter. All of this could have been avoided had the overall plan been coordinated with the family business owner’s professional advisors.

Trust Your Advisors
There are hundreds of these types of examples that illustrate why all of these problems should not be solved in a vacuum. Avoid slipping up by letting your professional advisors help you coordinate your plans. If you do so regularly, you will avoid the need to do the type of planning that could have been avoided had you been attentive to your situation on an ongoing basis.