DISCLAIMERS PROPOSED SPEAKERS. Strategies for Successful Succession Planning

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1 Strategies for Successful Succession Planning March 29, DISCLAIMERS The material appearing in this presentation is for informational purposes only and is not legal, accounting or investment advice. Communication of this information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountantclient relationship or advisor-client relationship. Although these materials may have been prepared by professionals, they should not be used as a substitute for professional services. If legal, accounting, investment or other professional advice is required, the services of a professional should be sought. Investment advisory and personal financial planning services offered through Moss Adams Wealth Advisors LLC. Assurance, tax and consulting services offered through Moss Adams LLP. 2 PROPOSED SPEAKERS Dan Gaffney, CPA Jode Beauvais, CPA Justin Fisher, CFP, AIFA 3

2 4 ABOUT MOSS ADAMS Full service public accounting firm with assurance, tax, and consulting services for middle-market public and private companies 1 of the 15 largest accounting firms in the United States with over 230 partners and over 1,700 staff in 21 locations throughout California, Arizona, New Mexico, Missouri, Oregon, and Washington Largest accounting firm headquartered in the West A founding member of Praxity AISBL, a global alliance of accounting firms Founded in 1913 and headquartered in Seattle, Washington Two affiliate companies Moss Adams Capital LLC and Moss Adams Wealth Advisors LLC BUSINESS OWNER SUCCESSION At Moss Adams we use our deep Health Care and Real Estate experience in concert with a wide array of services to assist owners & executives within the long term care industry: o Create a comprehensive succession plan o Facilitate an ownership transition strategy o Prepare and take business to market o Negotiate, structure and close transaction odetermine optimal structure for transaction proceeds 5 KEY QUESTIONS TO BE ANSWERED What is succession planning? How do you ensure the business remains financially strong during and after a transition? How would an ownership transition affect your family s financial independence? How do you identify management succession issues? How will ownership transition impact your estate plan? How do you assess your choices in ownership transition? How do you manage the tax impact of ownership transition? How do I get started on my succession plan? 6

3 7 LONG TERM CARE MARKET TRENDS It s a unique time to be in the industry: Real estate landscape Consolidation & diversification major themes Transactions will occur at unexpected times. You will receive inquiries. You may get an unsolicited offer. Are you prepared? BUSINESS AND PERSONAL LIFE CYCLE Maturity Renewal Decline Personal Life Cycle Growth Business Life Cycle Start-Up 8 WHAT S AT STAKE? Residents cared for Employees retained Value created Exit is orderly Timing is planned Legacy is preserved Successors developed Residents left to wonder Employees worried Value not maximized Exit is awkward Timing is in doubt Legacy undermined Hand-off is rocky Orderly Succession Fire Sale 9

4 10 COMMON MYTHS OF SUCCESSION PLANNING Myth: I have done some retirement planning projections; therefore, my personal financial planning is complete. Truth: A personal financial plan should encompass a lot more than just retirement planning. Rule: Ensure your financial plan creates a meaningful link between your resources and your life. COMMON MYTHS OF SUCCESSION PLANNING Myth: I am sure a family member or other key employee will be ready to take over when it is time for me to retire/sell. Truth: Having successors/leaders in place will prepare your organization for a viable future. Rule: Work with unbiased, independent people to objectively evaluate the leaders in your organization. 11 COMMON MYTHS OF SUCCESSION PLANNING Myth: I have completed my will; therefore, I have done succession planning. Truth: Estate planning covers only one component of succession. Rule: Always integrate your lifetime goals with your estate goals. 12

5 13 TIMING YOUR PLANS: When to get started: No contingency plan in place for current owner(s) and key executives Concerns about and/or lack of successors Significant number of management team members > 55 years old No formal strategic plan to define future business No comprehensive personal financial plan that connects business and personal assets IMPORTANT ELEMENTS OF YOUR PLAN Are all your bases covered? Your plan must help you: Build a business with transferable value Create sufficient personal liquidity and net worth to fund lifestyle Plan for management succession across multiple levels Anticipate and plan for your estate tax burden Build a successor organization and plan for an orderly transition of ownership 14 WHAT IS SUCCESSION PLANNING? Holistic approach Preserve and protect the growth and continuity of your assets 15

6 16 BUSINESS FINANCIAL PLANNING Transferable value Fair compensation and/or return to owners Profits Strong cash flow Healthy balance sheet Buy/Sell agreement PERSONAL FINANCIAL PLANNING Financial independence Business interest Liquidity Minimizing taxes Risk management 17 YOUR WEALTH ALLOCATION EXAMPLE Phase 1 Start up Phase 2 -Growth Phase 3 - Transition 18

7 19 MANAGEMENT SUCCESSION Managing through crisis Rewarding employees Revitalizing the business Retaining key administrators Managing through transition ESTATE PLANNING Minimizing taxes Family issues Fairness Liquidity Wealth transfer 20 STOP AND THINK. 21

8 22 TRANSFER TAX PROVISIONS FEDERAL Looking back, looking forward: Estate Tax Gift Tax GST Tax 2010 Rates 0% or 35% $1 million 0% 2010 Exemptions Unlimited or $5 million $1 million $5 million Rates 35% 35% 35% Exemptions $5 million $5million $5 million Rates & Exemptions (scheduled) 55% and $1 million 55% and $1 million 55% and $1+ million ESTATE PLANNING 2012 Window of Opportunity for gifting/planning $5,000,000 per person Freezing values Utilizing valuations and discounts Leveraging with trusts 23 LOGISTICS Current Will in place outlining your goals and wishes Titling of assets to ensure optimal estate advantage Coordination of plan with financial and tax goals 24

9 25 OWNERSHIP TRANSITION Maximizing value Achieving liquidity Understanding choices Gift Sale Bequest and no, you can t take it with you. OWNERSHIP TRANSITION: EVALUATING YOUR STRATEGIC EXIT ALTERNATIVES 26 QUICK SNAPSHOT: FEDERAL RATES Type of Federal Tax 2011/ % a) Income Ordinary 35% 39.6% 13.4% Dividends 15% 43.4%* 189.3% Capital Gains 15% 23.8%* 58.7% b) Transfer Gifts under $5M -0-% 55%** BIG% Gifts over $5M 35% 55%** 57.1% Estates the same** 1 As currently scheduled * Top marginal rate with 3.8% health care tax ** Top marginal rate; state inheritance taxes ignored 27

10 28 TOP REASONS PLANS FAIL No clear vision People in wrong roles Underqualified or incompatible advisors False starts Procrastination Lack of communication Family issues KEYS TO PLANNING 1. Follow a process 2. Team Various advisors Must be willing to challenge/debate you 3. Communication Among team Among business Key management Among family 29 PLANNING PROCESS WHAT ARE THE STEPS? 1. Diagnostic assessment 2. Who needs to be involved, when and in what role? 3. Focused meetings 4. Draft the plan 5. Review the plan 6. Implementation 7. Review/update the plan on annual basis 30

11 31 PLANNING A SUCCESSFUL TRANSITION Owners & Executives need to: Prepare financially & emotionally for exiting the business Understand the human dynamics of ownership transition Be objective in evaluating successors Be committed to building transferable value in the business Define & commit to estate planning goals Take control of the process QUESTIONS? Justin.Fisher@mossadams.com Dan.Gaffney@mossadams.com Jode.Beauvais@mossadams.com