There's a saying, "Fail to plan, then plan to fail." This applies to how selling a business can go badly wrong if processes are not set up ahead of time. The author takes a brief tour around what is required.

Among the most difficult procedures involved in transferring wealth is handing over the reins of a company to a buyer, either a listed company or a privately held one. Apart from the sometimes emotional wrench that this can entail, there are questions of tax, timeframes and expectations to consider. At Family Wealth Report, we have touched on business transition and transfer before (see an example here where we talked to UBS). Banks and advisory firms know this is a key issue for clients, and for the rising generation of high net worth individuals who sometimes take the helm of a transferred business.

To discuss this matter is Justin Miller of Evercore Wealth Management. (See below for more details on the writer.) As ever, the usual disclaimers apply to views of guest writers, and to get involved in the conversation, email tom.burroughes@wealthbriefing.com

The author Zig Ziglar once said, “Money isn’t the most important thing in life, but it’s reasonably close to oxygen on the ‘gotta have it’ scale.” 

Still, a business owner caught up in the stress and time-consuming work of negotiating and structuring the sale of their company can lose sight of what the transaction can mean at the personal level. It’s time to take a deep breath and consider this possible once-in-a-lifetime opportunity to maximize personal after-tax profits; minimize income, gift, estate, and generation-skipping transfer taxes; accomplish charitable goals; and protect assets.

A successful transaction starts with a collaborative team of advisors – which can include investment bankers, attorneys, accountants, and strategic wealth planning advisors – all working together to prepare the business owner for the liquidity event and to maximize the value, speed, and certainty of the transaction closing. By combining tax, estate planning and business succession strategies, we believe that business owners will have the greatest opportunity to maximize the wealth from the sale of their business.

With strategic wealth planning, the resulting savings can be significant – and the earlier you start, generally, the better the results can be. However, the sheer number of potential planning strategies can be overwhelming and easily lead to planning paralysis. For example, options could include intentionally defective grantor trusts, grantor retained annuity trusts, completed gift non-grantor trusts, incomplete gift non-grantor trusts, spousal lifetime access trusts, asset protection trusts, charitable trusts, family limited partnerships, family limited liability companies, qualified opportunity zone investments, qualified small business stock stacking, installment sales, discounting, recapitalization, estate freezes – it’s enough to make almost anyone’s head spin!

It’s worth the effort, however. A California-based couple was able to successfully close their private transaction in a tax-efficient manner while creating a lasting legacy for their family and charity. By adding a wealth advisor to their collaborative advisory team, the couple successfully eliminated $45 million of the sale proceeds from being subject to federal income taxes, as well as $35 million from being subject to state income taxes, deferred an additional $10 million from both federal and state income taxes, generated a $6 million charitable income tax deduction, and created a lasting legacy for their family that provided both asset protection and the ability for assets to grow free of gift, estate, and generation-skipping transfer taxes in perpetuity.

Selling a business is a challenging, and often exhausting, transition. But it’s important to make time, as early as possible, to ensure that a strategic wealth plan is structured to maximize the potential advantages of the transaction. After all, this life event is often the result of many years of hard work and sacrifice. In short, don’t leave any money on the table.

About the author

Justin Miller is a partner and national director of wealth planning at Evercore Wealth Management.