Estate Planning & Exit Planning Go Hand in Hand

Estate Planning & Exit Planning Go Hand in Hand

When you start the exit planning process, you first determine your goals and objectives, including who you are transferring the business to (family, key employees, or third-party sale) and how much income you and your family need when you leave the company.

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As you develop your exit plan, you will determine the business value and the capacity of the business to provide you and your family with future cash flow.

This Is Where Exit Planning Intersects With Estate Planning

  • Exit planning develops the roadmap on how you will exit the business and determines the business assets you have now vs. any after-tax monetized value. It also establishes how those assets will support your post-transition.
  • This income stream planning should not be limited to when you transition out of the business.
  • An essential part of planning is determining the income stream your family will have if the unexpected happens and you do not survive until you exit the business.

By creating both plans (estate and exit) together, you can leverage the time and money spent on exit planning when you design your estate plan. Both have similar goals and strategies and therefore should be coordinated in joint efforts with you and your advisory team.

A valuation of your business by a valuation expert will set realistic expectations of the potential proceeds when you sell/transition the business. It also will help you determine if you need a plan to grow and/or protect the business value through value-building strategies.

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If you have an estate plan in place, revisiting that plan and aligning it to your exit plan will give you a comprehensive strategy for your future income.

Exit planning and estate planning should also cover what will happen with the business and your estate upon your incapacity or death, especially if you are still active in the company. Proactive planning will keep the business running and meet your family’s financial needs if the unexpected happens.

An Estate Plan Will Help You:

  • Determine the income stream for your family and provide for financial security.
  • Determine who the business will transfer to in your family. If your family is not the successor of your business, your estate plan documents should reflect the plans for your business.
  • Protect your assets from creditor attacks and minimize tax consequences.
  • Ensure your charitable goals are met.

Additionally, an estate plan should not be considered as your exit plan. However, implementation of your estate plan should take place well in advance of any exit just as exit planning should take place years in advance of any exit.

Oftentimes, asset protection planning and estate/income tax minimization planning involve trusts or other entities and other strategies that, if not implemented well in advance of an exit, may have limiting effects on achieving your goals and objectives.

SVA can help you with your exit and estate planning needs. Contact us with any questions you may have.

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Biz Tip Topic Expert: Richard Kollauf - JD, CPA, CFP, AEP

Richard Kollauf - JD, CPA, CFP, AEP

Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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