Securities offered through Royal Alliance Associates, member FINRA/SIPC. Investment advisory services offered through Rehmann Financial, a Registered Investment Advisor. Rehmann Financial and 1
2 Mary Van Skiver, CPA, MBA, PHR, CEPA mary.vanskiver@rehmann.com 616.975.2839 Cathy Shoemaker, CPA, MBA, MST cathy.shoemaker@rehmann.com 231.946.6654 Jason Baum, CFP, ChFC, MBA jason.baum@rehmann.com 239.254.5057
3 T R A N S F E R M O T I V E S T R A N S F E R C H A N N E L S Charitable Employees Family Co-Owners Trusts Outside [Retire] Outside [Continue] Public T R A N S F E R M E T H O D S ESOPs Management Buyouts/Ins Phantom Stock Stock Appreciation Rights Charitable Remainder Trusts Charitable Lead Trusts Outright Gifts SCINs Annuities GRATs FLPs IDGTs Buy/Sell Russian Roulette Dutch Auction Right of First Refusal Negotiated One-Step Private Auctions Two-Step Private Auctions Consolidate Roll-ups Buy and Build Recapitalizations Initial Public Offerings Direct Public Offerings Reverse Mergers Going Private INTERNAL TRANSFERS EXTERNAL TRANSFERS
4 How much do I need? What are my choices? How much is it worth? Personal Planning #3 Basics: Will Shareholder agreement Life insurance Tax plan Retirement plan Investment plan Ownership Planning #1 Alternatives: Employee ESPO/buyout Family Financial buyer or recap Industry buyers Initial public offering Close down Bankruptcy Business Planning #2 Basics: Sense of current value Sense of potential value Value creation plan Business plan/presentation Owner/manager succession
5 DEATH DISABILITY DIVORCE DISAGREEMENT DISTRESS
6 Where will my money go? Expectations in retirement Why Have an Estate Plan Variables to consider & their impact on you Getting the most to my family Charitable trusts Income tax considerations Rehmann advisors & Wealth Path Planning after the sale Business wisdom delivered Obstacles & opportunities Questions & discussion
7 If the sale of your business is successful enough to leave you with more money than you expect to need, there are three places it can go: FAMILY CHARITY GOVERNMENT (TAXES)
8 If there is no estate plan in place prior to sale; 40% federal estate tax will likely apply to proceeds transferred to the next generation that exceed the exclusion amount (currently $5.49 million per person). Depending on what state you live in there may also be a state estate/inheritance tax due.
9 Do you currently have estate planning documents in place? a)yes b)no
10 Planning opportunities prior to the sale that can help maximize wealth transfer to the next generation is key. Gift business interests to next generation Income tax considerations Estate/gift tax considerations Sale of business interest to Intentionally Defective Grantor Trust (IDGT) Grantor Retained Annuity Tryst (GRAT)
11 What is the tax picture if you are selling your business? Top capital gains tax rate 20% Top ordinary income tax rates 39.6% Don t forget about Net investment income tax rate 3.8% State income tax rates Depending on where you live you could pay over 50% in income taxes when you sell your business.
12 What should you be discussing with your tax advisor prior to the sale to help defer or mitigate the income taxes to be paid? Section 1202: Small business stock capital gains exclusion Stock vs. Asset Sale ESOP: Employee Stock Ownership Plan Installment Sale Treatment Allocation in the Purchase Price 1 2 3 4 5
13 What are the opportunities and obstacles that someone may face during this transition? Is the financial impact of selling your business in-line with your expectations for life during retirement? What might someone be unaware of when planning for their future after the sale? What to do when sales proceeds must be converted to cash flow? How to address the risks associated with converting to cash flow? Securities offered through Royal Alliance Associates, member FINRA/SIPC. Investment advisory services offered through Rehmann Financial, a Registered Investment Advisor. Rehmann Financial and
14 Finding ways to spend time now that significant effort may not be required to run the business. Having a pre-constructed plan in place that incorporates the variables associated with post-sale life. Incorporating your most significant asset value into the context of a retirement. The period of time leading up to this event opens up the possibility for significant planning opportunities related to investing, charitable endeavors and retirement planning. The opportunity to pursue other interests and activities can be an exciting time.
15 The amount of money I think I need in retirement to live comfortably but not run out of money is: a)at least $500,000 b)between $250,000 and $499,000 c) Less than $250,000 d)i have no idea
16 When making the transition from business owner to retirement, having realistic expectations is important. The development of a comprehensive financial plan is the best step in understanding the impact that spending, taxes, inflation and financial markets can have on your retirement goals. Did you know? 67% of workers report that they or their spouse have saved money for retirement. 48% of workers report they and/or their spouse have ever tried to calculate how much money they will need to have saved so that they can live comfortably in retirement. 46% percent of workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. 19% say they need between $250,000 and $499,999, while 25% think they need to save less than $250,000 for a comfortable retirement. 19% of pre-retirees thought they could withdraw 7-9% per year from their savings. An additional 19% thought they could withdraw 10-15% per year. Source: 2015 Retirement Confidence Survey, Employee Benefit Research Institute and Greenwald & Associates
17 Should you rollover your company retirement plan to an IRA? What are the advantages/disadvantages in doing so? Is a Roth conversion appropriate for you? How should proceeds from a business sale be invested and how is investment risk accounted for? Should an investment incorporating a guaranteed source of income be considered? What are the implications in doing so? Do I need life insurance during retirement? What are my options for any existing policies? What is the appropriate amount of investment risk in my portfolio so that I don t run out of money in retirement? Securities offered through Royal Alliance Associates, member FINRA/SIPC. Investment advisory services offered through Rehmann Financial, a Registered Investment Advisor. Rehmann Financial and
18 It could make sense to rollover your retirement plan to an IRA. Be aware that rules regarding distributions from a qualified retirement plan account and an IRA do differ. Example: Discrepancy between age 55 vs. 59 ½ Depending upon your income tax situation, a Roth conversion of retirement plan assets may be suitable for you. Amounts converted to a Roth IRA are generally subject to ordinary income tax; however, future earnings are distributed tax-free when made as a qualified distribution. Developing a diversified investment portfolio and investing strategy is of paramount importance. Investment avenues exist that offer the potential for guaranteed retirement income, tax-deferral and principle protection while incorporating estate planning and wealth transfer goals. If life insurance was put in place as a business continuation approach - review the available options before canceling any policies outright after sale of the business. In Summary The risk of outliving financial resources is greater than many people realize. Developing a plan that accounts for your personal risk tolerance and capacity while accomplishing your income and wealth transfer objectives is vital to achieving the life in retirement that you desire. Source: Society of Actuaries, Reaching Guaranteed Lifetime Income. https://www.soa.org/search.aspx?q=guaranteed+lifetime+income
19 Charitable trusts can be established in the year of sale to help mitigate the current income tax, future estate tax, and provide a current income stream for you or your family. Charitable Remainder Trusts Income stream to you or your family during life Balance to charity Charitable Lead Trusts Income stream to charity for a certain number of years Balance to family
20 With the assistance of a Rehmann Financial Advisor and our comprehensive financial planning tool, Wealth Path, all of these questions and more can be answered. Wealth Path Real-time Modeling Net Worth Statement Secure Vault Informative Reports We have the capability of Add financial investments, You will have access to your Generate comprehensive modeling real-time changes property values, business complete financial picture reports of variables to illustrate the values, mortgages and along with an online Vault on cash flow, retirement impact on your financial and other assets to produce an for important financial income, net worth and estate plan. accurate picture of your net documents and information. historical balance just to worth. name a few.
21 Rehmann CPAs Assist you with forecasting and planning to reduce the income tax impact. Estate Planning Assist you with reducing transfer tax consequences. Financial Advisors Assist you with retirement and investment management needs.
22 Please send any questions to events@rehmann.com or view more of Rehmann s resources visit: rehmann.com/succession-planning