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CASE STUDY:
Business Transition Strategies For The Multi - Married

This information is for hypothetical and educational purposes only and should not be considered specific tax, legal, investment or planning advice, which will only be provided on a personalized basis. These are not actual clients, this is for educational purposes only. This information is based upon on our understanding of current laws, which is subject to change.

Introduction

When I first met Mr. Multiple, he was 50 years old and his wife was 44 years old; they had one child together and he had children from a previous marriage.
Mr. Multiple's estate was valued at approximately $3.5 million, with the majority of that centered in his business. The business was very profitable, however, three customers accounted for a majority of annual revenues. One of his older children had just begun working
for the business but no decision had been made about this son potentially taking over the business in the future.

Objectives

Mr. Multiple came to us with the following objectives:

1. In the event of death, provide for his wife and child in a manner consistent with their current lifestyle.

2. In the event of death, provide for his adult children from previous marriage in a moderate amount.

3. Maximize the value of his business through diversification of the customer base and expansion of the revenue stream.

4. Reduce current income taxes.
5. Reduce day-to-day involvement in the business gradually, transitioning into having financial independence over time.
6. Purchase a second home.

Observations

After reviewing Mr. Multiple’s information thoroughly, we made the following observations:
1. Mr. Multiple’s will had a trust contained in it, but was set up such that his estate would be subject to over $1 million in estate taxes upon his death. Additionally, a substantial amount of his life insurance was personally owned with the estate as beneficiary, creating unnecessary risk and exposing the estate to potential creditors’ claims.

2. Mr. Multiple’s overall situation was quite typical of what we see among small business owners. He had given time and attention to identifying an age at which he wanted to slow down but had not given sufficient time and attention to creating a comprehensive, all-inclusive retirement plan.

3. Mr. Multiple’s general financial security was at risk; his net worth was heavily weighted toward his business, he had few independent investments outside of the business, and his life insurance needs were not fully met.

Recommendations

In designing a balanced set of solutions for Mr. Multiple, we suggested the following:
1. Mr. Multiple should re-title some of his assets into his current wife’s name for both tax and estate purposes.

2. Mr. Multiple should change beneficiary designations within his retirement plans to more closely align with his overall estate planning strategies.

3. Mr. Multiple should update his will to contain a full family trust structure; this would allow for future generations to receive benefits for certain purposes such as educational needs and the like.
4. Review and audit all life insurance policies to ensure appropriate coverage and seek to reduce overall premium expenses.
5. Create a disciplined plan and approach to professional management of investments for the purpose of diversifying his overall portfolio and strengthening his general financial security.*

Summary

Mr. Multiple chose to implement all of our recommendations. Today his net worth is over $17 million; we were able to move the business real estate into an LLC and house over $5 million of seconded insurance to pay the taxes in the LLC.

Mr. Multiple’s son is gradually expanding his role in the business in anticipation of purchasing it and running it himself at some point in the future. The overall estate plan includes provisions for this sale at an advantageous price to the son, while also providing some cash payments to Mr. Bolton’s other children upon completion of the sale. Finally, Mr. Multiple has purchased a vacation property and is gradually increasing the amount of time spent there.

Investing involves risks, including loss of value. Gifts do not receive a step-up in basis. As such, heirs may be subject to capital gains taxation. Other limitations and restrictions may apply not identified above.