Smart Ways to Transfer the Family Business

Smart Ways to Transfer the Family Business

Posted on October 10, 2017

For most business owners, retirement is either a subject they welcome, or the last thing they want to think about. If you are looking forward to that day, taking the time to plot your company’s future can increase the odds of, and choices for, making a tax-efficient transfer and put you in a better position to ensure that your proceeds have the greatest potential to provide you with a strong retirement income. Here are some issues to consider.

In some cases, the owner is the business. If you left the company in the hands of your employees for three months, would it be worth roughly as much when you came back? If the answer is no, your heirs are likely to face significant obstacles keeping the business going, and the price an outsider may be willing to pay may be much lower as a result.

But if you conclude that the company is viable without you there to run it, your next step is to get an accurate valuation of its worth. A professional valuation and tax advice can help you look past your emotional attachment to the company to arrive at a realistic sales price.

If you are planning on selling your business, you should determine how much income you will need to support your lifestyle and retirement goals, and what portion of that will come from the sale of the business — as compared with your investments and other assets.

If you plan to transfer the business to family members or longtime employees, rather than sell to an outside buyer, weigh the options. The lifetime gift exemption gives business owners the ability to transfer a part or all of the company as a tax-free gift. In 2017, the exemption is worth $5.49 million for individuals and $10.98 million for couples, and is adjusted annually for inflation. You may owe taxes on amounts exceeding the exemption, but once the business is out of your hands, it is no longer part of your estate, and future growth of the company will not subject your estate to capital gains taxes.

You may choose to sell the business to heirs — or an outside buyer — by lending them the money through a note sale, which allows the buyer to pay you back directly. The advantage to you is a steady stream of income from the principal and interest from the loan for an agreed-upon period.

You could execute a partial sale while retaining a portion of business assets and income. You will pay capital gains on any profit from the sale, but you will also get a steady income from rent or lease of office space or other assets.

Whatever choice you make, a smooth transition can be the crowning legacy of the years of care and effort you have poured into your business. It can also leave you with income to support your life’s next act, or in some situations keep you involved in a business you love. And you can have the satisfaction of knowing that your vision has the potential to live on for generations to come.

For more information, contact The Menashe Morley Group in the Rancho Santa Fe office 858-381-8113. The Menashe Morley Group, serving the community for over 32 years: David Menashe is a Senior Vice President and Wealth Management Advisor, Bruce Morley CRPC ® is a First Vice President and Wealth Management Advisor and John Naviaux CPWA ® is a Vice President and Wealth Management Advisor. Merrill Lynch makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S) and other subsidiaries of Bank of America Corporation. Investment products: Are Not FDIC Insured, Are Not Bank Guaranteed, and May Lose Value. MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. © 2017 Bank of America Corporation. All rights reserved. AR77PRBD

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