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Akron Cleveland A Succession Planning Overview Presented by: Joseph Kirgesner, CPA, CVA, CFF, MBA Plans Are Worthless, Planning.

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Presentation on theme: "Akron Cleveland A Succession Planning Overview Presented by: Joseph Kirgesner, CPA, CVA, CFF, MBA Plans Are Worthless, Planning."— Presentation transcript:

1 Akron Cleveland A Succession Planning Overview Presented by: Joseph Kirgesner, CPA, CVA, CFF, MBA Plans Are Worthless, Planning is Essential!

2 Akron Cleveland Succession plans must include: * OPERATIONAL (How are you going to be able to retire?) * OPERATIONAL (How are you going to be able to retire?) Who can carry on the company’s vision?Who can carry on the company’s vision? Using Advisory Boards (visit applegrowth.com)Using Advisory Boards (visit applegrowth.com) 2 * FINANCIAL (How are you going to be able to retire?) * FINANCIAL (How are you going to be able to retire?) How much is my company worth?How much is my company worth? Who are the buyers? Do I have options?Who are the buyers? Do I have options? What are the triggering events?What are the triggering events? How is the price going to be paid?How is the price going to be paid?

3 Akron Cleveland Non-Qualified Deferred Compensation Similar to a 401k without current corporate tax deductionSimilar to a 401k without current corporate tax deduction No current outlay of cash by companyNo current outlay of cash by company Unsecured promise to pay earned compensation in later yearsUnsecured promise to pay earned compensation in later years Employee must have "substantial risk of forfeiture“Employee must have "substantial risk of forfeiture“ May be discriminatoryMay be discriminatory Useful for retiring owner AND key employeeUseful for retiring owner AND key employee 3 all subject to FICA tax in year of vesting all subject to FICA tax in year of vesting not subject to 0.9% PPACA surtax (of city) when paid not subject to 0.9% PPACA surtax (of city) when paid tax deductible income stream to owner after retirement tax deductible income stream to owner after retirement reduces FMV of common stock reduces FMV of common stock may reduce IRS unreasonable compensation challenge – past and future may reduce IRS unreasonable compensation challenge – past and future only PV of compensation subject to FICA, Medicare and City taxation only PV of compensation subject to FICA, Medicare and City taxation 83B election for key employee may allow capital gain 83B election for key employee may allow capital gain

4 Akron Cleveland FAMILY PASSTHROUGH ENTITIES / FLPs or LLCs General partner has 100% control and very limited equityGeneral partner has 100% control and very limited equity Limited partners have no control and significant equityLimited partners have no control and significant equity LP interests are generally creditor-proof, and non-maritalLP interests are generally creditor-proof, and non-marital useful for some interfamily transfers (C corps, LLCs, partnerships)useful for some interfamily transfers (C corps, LLCs, partnerships) may be preferable to irrevocable trustsmay be preferable to irrevocable trusts 4 Discounts available for gifts of closely-held investmentsDiscounts available for gifts of closely-held investments –Combined discounts may range from 20% to 40% or more (lack of marketability, lack of control) Income splitting with next generationIncome splitting with next generation Typically no self-employment tax on LP interestsTypically no self-employment tax on LP interests

5 Akron Cleveland Certain Types of Trusts Three parties to the TrustThree parties to the Trust –Grantor (settlor) - contributes assets –Trustee(s) - manage assets while in trust in accordance with Trust Instrument –Beneficiaries - receive economic benefits of assets in Trust Irrevocable Life Insurance Trust (ILIT)Irrevocable Life Insurance Trust (ILIT) Intentionally Defective Grantor Trust (IDGT)Intentionally Defective Grantor Trust (IDGT) Dynasty TrustsDynasty Trusts Charitable Lead Trust (CLT)Charitable Lead Trust (CLT) 5

6 Akron Cleveland Example: $20 million family business Create NQDC for executive at $200,000 year for 20 yearsCreate NQDC for executive at $200,000 year for 20 years Transfer shares to FLPTransfer shares to FLP Gift $5,120,000 LP interests in 2013Gift $5,120,000 LP interests in 2013 Sell remaining LP units at fixed note 2.25% AFRSell remaining LP units at fixed note 2.25% AFR 6 Results Executive gets $800,000 annually for ten years, then $200,000 for another tenExecutive gets $800,000 annually for ten years, then $200,000 for another ten Estate & gift tax savings of $9,540,000 x 45% = $4,300,000Estate & gift tax savings of $9,540,000 x 45% = $4,300,000 All appreciation on 99% of company is transferred gift tax freeAll appreciation on 99% of company is transferred gift tax free Executive remains in control of corporationExecutive remains in control of corporation


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