The recent article from Wilmington Insights titled “Which Comes First - Estate Planning Or Exit Planning?” notes that a successful business exit plan accomplishes three important goals:
- Financial security, where the business sale or transfer provides the income the owner and her family need after her exit;
- A successor selected by the owner, such as children, key employees, co-owners or a third-party; and
- Income tax minimization, giving the owner more cash in her pocket.
A successful estate plan also achieves three important personal goals:
- Financial security for the decedent’s heirs and family;
- Control by the decedent to choose who receives her estate assets; and
- Estate tax minimization to reduce the government’s share and give more to the decedent’s heirs.
If you look at exit planning and estate planning together, you can ask relevant questions in order to see the big picture:
- If you fail to exit the business as planned, how do you provide your family with the same income they’d have enjoyed if you had?
- Can you be sure your business retains its previously determined value?
- Does your estate plan reflect and implement your wishes, if you don’t survive after the exit?
- If you die before exiting the business, will your family still receive the full value of the business?
Business owners should determine if their estate plans address these issues.
Another goal is minimizing creditor risk for you and your heirs, which can be done with both exit and estate plans.
Remember: estate taxes are easier to avoid than income taxes, and estate planning can frequently involve funding from life insurance proceeds, which pay in cash upon death. However, exit planning often involves the owner’s own accumulated assets. There no correct answer to the estate or exit planning question. You need to do both. Failure to act in either case, brings about lasting problems for you, your business and your family.
Reference: Wilmington Insights (August 1, 2017) “Which Comes First - Estate Planning Or Exit Planning?”