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A Succession Planning Overview
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  1. Plans Are Worthless, Planning is Essential! A Succession Planning Overview Presented by: Joseph Kirgesner, CPA, CVA, CFF, MBA jkirgesner@applegrowth.com

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

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

  4. FAMILY PASSTHROUGH ENTITIES / FLPs or LLCs • General partner has 100% control and very limited equity • Limited partners have no control and significant equity • LP interests are generally creditor-proof, and non-marital • useful for some interfamily transfers (C corps, LLCs, partnerships) • may be preferable to irrevocable trusts • Discounts 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 generation • Typically no self-employment tax on LP interests 4

  5. Certain Types of Trusts • Three 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) • Intentionally Defective Grantor Trust (IDGT) • Dynasty Trusts • Charitable Lead Trust (CLT) 5

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