Cases 13 to 16
Father/Son Succession Plan
A small, heavy construction contractor was nearing retirement. Company had a pension plan in place, but no buy/sell or estate plan. Father and son operated the business together. Company had seven employees.
Company was too valuable to gift outright to son. Family was concerned about equalizing estate values with other son who was not active in the business. Company was continuing to grow and making the problem bigger.
BMI had company appraised. Total value was less than originally thought. BMI set up a non qualified retirement plan for the father which created a liability equal to book value. Father was able to recapitalize the company and gift the stock to the son making the remaining purchase price tax deductible in the form of a retirement benefit. To equalize with the son. BMI arranged for estate tax free liquidity payable to the son at the Father’s death. The retirement plan provided income to both the Mom and Dad income tax free.
Case No. 13
Case No. 14
Equalization of Assets to Heirs
A large farmer with two sons operating the business. There were two other children not involved in farming operation.
Father (72) wanted to protect the farm operation from estate taxes and pass the ownership to the operating the ranch to the boys. He wanted to equalize with the other two children.
BMI arranged for a gifting program to pass the land to the boys at today’s valuation. BMI then restructured the estate plan and determined the projected estate costs and value of non-farm assets. To equalize with the other two children, BMI arranged for a tax deductible insurance financing plan to fund the estate tax liability and provide equalization for the non-farm children.
Control of Company During Retirement
A telecommunications company with multiple family members. Oldest son was the operations manager.
Dad is ready to retire and wants to structure a plan to pass ownership to his children. Dad is worried about estate taxes and how to maintain control of the company while passing on the appreciation to the children.
BMI had company appraised to determine the lowest value the IRS would accept for estate tax purposes. Dad recapitalized the stock and gifted the non-voting stock to his children in the business. Dad retained the voting stock and control. BMI then structured a buy/sell arrangement between the children and acquisition if voting control to the son who was in charge of operations. The son had an option to purchase the stock from the other children but needed capital. An irrevocable trust was established and funded with life insurance to acquire the stock from the non working children..
Case No. 15
Case No. 16
Succession Plan with Partial Ownership
A large oil field construction company owned by father with son in the business.
Father was faced with a potential unreasonable compensation problem due to the profitability of the company. He was also concerned about the business continuity issues and wanted to formulate an estate and business succession plan.
BMI did an analysis of the wages the father had not earned since the beginning of the company. This was a present value offset liability used to defray the income tax liability on the unreasonable compensation liability. BMI also designed an estate plan to provide liquidity to fund their estate tax liability using an irrevocable trust and tax deductible funding. BMI also designed a business succession plan to give partial ownership to the son.