What you are about to read was difficult for me to write. Yet it is probably the most important article I have ever written. It was written on September 14, 2001, for the members of the Texas Petroleum and Convenience Store Association (TPCA). Please read it—especially the last paragraph. Let your heart guide your decision.
Of course, the TPCA Fall Management Conference was cancelled. So was my seminar (Smart Business Succession Strategies), which was part of the conference. It is strange how something so important can become unimportant in a heartbeat.
Because succession planning is so essential to business owners and their families, your TPCA officials and I agreed that this article (covering some of the most important points of the seminar) should be written for you.
Always remember, your succession plan—whether transferring your business to your kids or selling it to employees or some other buyer—must never stand alone. Properly done, your succession plan must be part of a comprehensive plan including the following points: a wealth transfer plan for every significant asset, a succession plan for your business and a retirement plan for you and your spouse.
The three plans above must be implemented during your life. Your will and trust (no matter how long and fancy) can never protect your family and business. Why? These documents only speak when you die. Then it's too late.
What happens if you don't plan or if you have a typical plan (only a will and trust)? In a heartbeat, one-half (or more) of the wealth it took you a lifetime to accumulate will be lost to the IRS. Your business may have to be sold to pay taxes. Can these gut-wrenching results be avoided? Yes! Here's how.
Let's look at the specific strategies that you can use to protect the four specific types of assets you might own. For example, each asset category is introduced beginning with the letters in bold type.
Your business. Never sell your business to younger members of your family. You and your kids will get socked for three unnecessary taxes. Try this easy-to-do process: Create voting stock and nonvoting stock, a tax-free transaction. Transfer the nonvoting stock to the business children via a grantor retained annuity trust or an intentionally defective trust.
Residence. Use a qualified personal residence trust to get your residence out of your estate, allowing you and your spouse to live in it until the day you die.
Funds in a pension plan, profit-sharing plan, 401(k), rollover IRA or similar qualified plan. Because these assets are subject to a double tax (income tax and estate tax), your family typically gets only 27 cents out of every dollar. A subtrust turns the tables on the IRS.
All other assets. This includes everything else you own, such as other real estate and investments. Here's a list of the most common strategies: a family limited partnership (FLIP), a charitable remainder trust, a charitable lead trust and an irrevocable life insurance trust.
So, this is the plan to serve the readers of this column: If you have a question contact me, Irv Blackman, at (847) 674-5295. Now let's help others while you help your family. Read the book, Tax Secrets of the Wealthy, on which the seminar and this article are based. All proceeds will be donated to victims of the tragedy on September 11th. Make your check payable to the Red Cross or other tragedy-related charity of your choice for $187 (the regular price is $367) and send it to Wealth Book/Charity Plan, Blackman Kallick Bartelstein, LLC, 300 South Riverside Plaza, Chicago, IL 60606. Please attach your business card or letterhead to your check.