One of most frequently overlooked tools in your estate planning arsenal is the portability election.
Estate portability elections stem from Sec. 2010(c)(5)(A), which provides that a deceased spousal unused exclusion (DSUE) amount becomes available to a surviving spouse’s subsequent transfers during life and at death but only if the executor of the decedent’s estate timely files Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
Regs. Sec. 20.2010-2(a)(1) establishes the requirements for a timely filed portability election and provides that the due date of an estate tax return required to elect portability is nine months after the decedent’s date of death or the last day of the period covered by an extension if an extension of time for filing has been obtained. After Form 706 is timely filed, the portability election is automatically made for estates required to file, unless affirmatively stated otherwise by the estate’s executor on the return. Once made, the election is irrevocable. An estate’s executor is required to file an estate tax return in all cases where the gross estate exceeds the basic exclusion amount in effect under Sec. 2010(c), which for 2023 is $12,920,000 (see Sec. 6018(a)).
On July 8, 2022, the IRS released Rev. Proc. 2022-32, which updates and expands the simplified method for estates to obtain an extension of time to make a portability election under Sec. 2010(c) (5)(A). The revenue procedure became effective the day it was released, supersedes Rev. Proc. 2017-34, and allows estates with no filing requirement under Sec. 6018(a) to obtain an extension to make a portability election up until the fifth anniversary of a decedent’s date of death, subject to certain requirements.
Therefore, in today’s world, with the 2023 estate and gift tax exemption at $12,920,000 per individual and $25,840,000 for married couples, many executors aren’t required to file an initial estate income tax return upon the death of a spouse.
However, not filing Form 706 deprives the surviving spouse of the portability election, while filing the return guarantees that election. And the tax consequences can be significant – especially if Congress does not extend the provision in 2017’s Tax Cuts and Jobs Act (TCJA) which essentially doubled the estate exemption, beyond 2025, at the end of which the exemption is set to revert to 2017’s $7,000,000 per individual limit (adjusted for inflation).
Here’s an example of how the portability election can make a difference:
Joseph and Elizabeth were married, were named in each other’s will as executor of their spouse’s estate, and shared the following assets:
Asset | 2020 Value | Joseph | Elizabeth |
Personal Residence | $500,000 | $250,000 | $250,000 |
Farmland (5,000 acres) | $11,600,000 | $5,800,000 | $5,800,000 |
Investments | $1,500,000 | $750,000 | $750,000 |
Total Estate Assets 2020 | $13,600,000 | $6,800,000 | $6,800,000 |
Joseph died in 2020, leaving his estate to his wife, Elizabeth, and trusting her to look after their children’s needs. Since his estate was less than his estate exemption, she didn’t file Form 706, and inherited Joseph’s assets tax free, under the “Bequests to Surviving Spouses” deduction on jointly held property. Using this deduction has the virtue of bypassing Joseph’s estate exemption for 2020 entirely – which would have left that entire amount available for Elizabeth to add to her own estate exemption at her death, had she filed Form 706 and elected portability.
We will assume that Elizabeth spent all the income derived from her husband’s estate and her own assets in 2021 and 2022, and that the assets did not appreciate.
Since Elizabeth didn’t claim the portability election on Joseph’s estate, here’s the picture at her death in 2022:
Elizabeth’s Estate 2022 | $13,600,000 |
2022 Estate Exemption | $12,060,000 |
Taxable Estate | $1,540,000 |
Estate Tax Rate | 40% |
2022 Estate Taxes | $616,000 |
Now, if Elizabeth had filed Form 706 for Joseph’s estate in 2020, and elected portability, the picture would be very different, since Elizabeth inherited Joseph’s estate without tax consequences and his 2020 estate exemption was not implicated:
Joseph’s Estate 2020 | $6,800,000 |
Bequest to Surviving Spouse | $6,800,000 |
Net Estate | $0 |
2020 Estate Exemption | $11,580,000 |
2020 Exemption Applicable | $0 |
2020 Exemption Available to Port to Elizabeth | $11,580,000 |
Elizabeth’s Estate 2022 | $13,600,000 |
2022 Estate Exemption | $12,060,000 |
Joseph’s 2020 Exemption Ported to Elizabeth | $11,580,000 |
Elizabeth’s Total Estate Exemption 2022 | $23,640,000 |
Elizabeth’s Taxable Estate 2022 | $0 |
One form filed, one portability election made, and the difference is over $600,000 in estate tax liabilities.
The moral is, file Form 706, and elect portability. Whatever the size of the estate.
Estate planning is a deeply personal matter and can easily become overwhelming what with all the financial details and the emotions that arise when contemplating the end of our days. We understand this. Come consult with our advisors, and let our caring experts guide you through a plan to protect your hard-earned assets for your loved ones – one which aligns with your individual situation.
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
Estate planning can be a difficult task – or many individual tasks. We’ve discussed the need for wills and powers of attorney, but there’s another vehicle for protecting your assets and your legacy for your heirs – a trust, or trusts.
But how do you determine whether a trust is the right thing for your family? Some general guidelines:
- If you have a high net worth;
- If you own significant real estate;
- If you want to keep your assets and arrangements private;
- If you have minor children;
- If one or more of your heirs will need long-term care; or
- If you have multiple beneficiaries and specific goals as to the protection of each
The answer might be yes.
Wills are great, and absolutely necessary, but any will has to be validated by the probate court. Trusts, as a general rule, bypass this oversight and its attendant costs (the most common exception is a Testamentary Trust, which is created within the will itself).
However, be aware that trusts come with their own set of costs – your estate attorney’s fees, any payments to the trustee, the fees for filing the trust’s tax returns, and income tax incurred by the trust, etc. It’s a very good idea to identify the specific goals of your trust before your consult your estate attorney.
Identifying those goals can also point you toward the right kind of trust for your purpose(s).
Some types of trust commonly used in estate planning are:
- Revocable Living Trust: Such a trust is owned by you during your lifetime. You can manage the assets it holds just as you manage assets held in an investment account – buy and sell them, withdraw them, add to them, and change your directions for distributions to your heirs. One potential downside to a revocable trust is that, since the assets remain yours and under your own control, these assets will be available to creditors for collection of any debts. This is not necessarily a great idea in many circumstances in the State of Louisiana.
- Irrevocable Trust: Absent a court order, generally speaking these trusts cannot be changed once they have been placed in force. The assets you designate will transfer from your own ownership to the trust’s; you cannot alter the terms. However, since they are no longer yours, any assets held in an irrevocable trust are shielded from your creditors and not included in your estate.
- Family Trusts: These can be revocable or irrevocable and are designed to protect your assets in the interests of your family members.
- “AB” Trust: This is really two trusts, but they are usually created together. The “A” trust, which is a Marital Trust, designed to protect your surviving spouse for his or her lifetime. Your spouse must be the sole beneficiary of such a trust for his or her lifetime, though s/he may, after your death, distribute some or all of the trust’s assets as s/he sees fit. The trust’s designated assets pass to your spouse tax-free, as you can pass any or all of your assets to your spouse without any incurred income tax liabilities. The “B” Trust would benefit your non-spousal heirs – and you can place assets into it shielded from income tax ramifications up to the limit of your estate exemption. The remainder of your assets can pass into the “A” trust for your spouse. This can be further complicated by allowing your spouse the use of the income of certain assets for their lifetime, which is called a usufruct.
There are other types of trusts, which may or may not fit your needs, such as an Irrevocable Life Insurance Trust (ILIT) or Dynasty Trust.
Whether you should set up a trust, and if so, what type of trust is best, depends on you, your financial picture, your goals for your legacy, your family’s goals, needs, and wants. No two families are the same – and one size never fits all.
That’s why estate planning is a deeply personal matter. We understand this. Come consult with our advisors, and let our caring experts guide you through a plan to protect your hard-earned assets for your loved ones – one which aligns with your individual situation.
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
Money and death. Most people (myself included) find these topics difficult to raise with family members. One’s approach to both is necessarily emotional as well as, hopefully, rational – for all parties to the discussion.
But a crucial factor in estate planning is talking with your family about your plans. All too often, family discord after a death creates rifts and can even end in your hard-earned assets diminishing through lack of family harmony.
So, you need to talk about the hard things. Ask for your family members’ input, draw them out about their own plans, goals, and desires.
A thing as small as a silver-plate soap dish can have intense sentimental value for one of your children, but maybe not the other(s).
All your children and grandchildren may want use of the beautiful holiday lakefront home. Maybe some won’t.
By understanding what your heirs want and need, you can devise a plan to be fair to each, while taking account of their individual goals.
But, further than this, in understanding what is needed, you and your financial advisor can structure the way you leave your assets, whether individually or jointly, so that, for example, the vacation house will be professionally managed, and the bills for upkeep and maintenance, insurance, and property taxes will be paid timely. If a number of your heirs want use of the property, you can specify the terms of such use, so that everything is spelled out, no questions are unanswered, and your loved ones can simply enjoy the lake house, under the terms and according to the conditions you have set forth.
For example, if you have four children, and each of them has two children, and all of them want to use the vacation home, it’s not likely that all will be comfortable crammed into the house over the Fourth of July. So, yes, be specific, high-demand dates could be rotated among your children from year to year.
Trusts and limited family partnerships are vehicles which can be used to safeguard both your assets and your directives as to their use – your financial and estate advisor can guide you toward the best type of trust for the purpose you want to achieve, and advise whether a limited family partnership would be a good or a bad idea for you and your loved ones.
Really, you should have two family financial meetings – the first to obtain information on their wants, and to give your heirs a general idea of how you plan to handle your estate; the second, after you’ve taken this information to your financial and estate advisor and your estate attorney, and determined more specifically how you will secure your assets for and to your loved ones.
In this meeting, it’s you who will provide most of the information.
By involving your loved ones in your planning, you can ensure they each feel valued, and heard. This is not only vital to maintaining family harmony but will help them be as comfortable as possible with your arrangements.
Estate planning is a deeply personal matter – and, for many, a daunting prospect. We understand this. Come consult with our advisors, and let our caring experts guide you through the process.
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
A friend of mine told me a story about her mother’s death. Her father had died the year before. While she and her siblings were still reeling from the one-two punch of grief, they found her mother’s financial and estate documents completely unorganized, anywhere but not everywhere. Some stock certificates were unlocatable and had to be replaced. Fortunately, the wills were with the parents’ attorney, but dealing with an estate, even a relatively small one, in utter disarray was a nightmare for the heirs – one which took years to resolve.
Don’t let this happen to your loved ones. Get all your estate ducks in a row on the same pond.
Key to leaving your estate organized is – a financial and estate organizer! With labeled sections and tabs within the sections, this can be a paper copy or an electronic copy.
In your organizer you can keep:
- Tables of contents for each section
- Wills
- Powers of Attorney
- Birth certificates
- Marriage (and divorce) certificates
- Property deeds
- Automobile titles
- Financial account statements (bank, investment, retirement)
- Digital asset statements
- Life and disability insurance policies
- Loan and/or mortgage documents
- Personal financial statements (a listing of all assets and liabilities)
- Any licenses or permits (including but not limited to driver’s licenses)
- Copies of passports
- A list of electronic devices
- Burial and service instructions
- IRA and pension beneficiary designations
Do not include a list of passwords for your online accounts – these change frequently. Instead, we recommend you store your online account passwords in a secure cloud password site such as Pass Portal – share with your significant other and where to find them and give him or her your log-in credentials to that site.
A financial and estate organizer, properly prepared and maintained, will save you headaches as well as sparing your heirs the nightmare my friend went through. You will have your financial and estate picture at your fingertips, and your loved ones will also, when the time comes for them to deal with your loss.
Let your financial and estate advisor help you prepare both physical and electronic organizers. S/he will know what needs to go into them – and let him or her keep a copy themselves. Maybe another copy for your estate attorney.
Store your physical organizer in a secure location, maybe a lockbox – share this location with one or two trusted loved ones. Store your electronic organizer within a secure onsite environment or on a secure computer. Make sure your loved ones know your computer passwords!
Make sure to keep your organizer updated – your financial advisor should remind you of this periodically. If you update your will or your powers of attorney, make sure the new one(s) gets into the organizer, and the old one(s) gets destroyed. If you take out a new life insurance policy, add it to your organizer, and update the table of contents for that section to take note of it.
Estate planning is a deeply personal matter – and, for many, a daunting prospect. We understand this. Come consult with our advisors, and let our caring, empathetic experts guide you through the process.
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
One great benefit of being married (when it comes to estate planning) is that you have an avenue to make gifts, both during your lifetime and at your death, to your spouse in any amount and entirely free of federal tax consequences.
All non-spousal gifts and bequests are subject to IRS gifting limits and estate exclusion ($12.92 million per individual or $25.84 million jointly for a married couple for 2023), but, absent Congressional action, this figure will revert to 2017’s exclusion adjusted for inflation to $7.0 million per individual or $14.0 million per married couple, adjusted for inflation, as of January 1, 2026).
You can, in effect, transfer any part or the whole of your assets to your spouse, without tax consequences until the time of the death of the surviving spouse. At that time, any assets above the estate exemption for that year will be taxable to the heirs, unless the surviving spouse has remarried, and transferred his or her assets to their new spouse.
However, the full benefits of the unlimited spousal deduction apply only when both spouses are U.S. citizens. If the receiving spouse is not a U.S. citizen, there is a limit to how much can be transferred annually – the limit for tax year 2023 is $175,000. For non-citizens, the unlimited spousal deduction only applies when transfers, gifts, or bequests are made via a qualified domestic trust; to qualify, at least one of the trustees must be a U.S. citizen, and the trust must provide that any distribution of principal be subject to that U.S. trustee’s withholding of any estate tax due.
The unlimited spousal deduction is one of the most powerful tools in estate planning; however, it is vital to use wisely it in the context of your individual family and financial situation. For example, let’s say you and your spouse have a combined estate of $25.84 million. Your spouse can inherit it all, with no immediate tax consequences. But, when your surviving spouse dies, will your children and grandchildren be hit with a large tax bill on their inheritance? What if the current estate exclusion limits have not been extended by Congress, and reverts to an inflation-adjusted $7 million? Assuming your spouse has not remarried and qualifies for only the individual estate exemption and has not significantly depleted the family assets they’ve inherited, that tax bill could become an unwelcome reality for your descendants, who will at the same time be dealing with a huge loss and much grief.
Protect your legacy now – consult with your CPA, financial advisor and estate attorney – estate planning is too important not to seek expert guidance for it. They can review your financial picture and its individual components, discuss in-depth your long-term goals for your family’s financial security, and devise a plan crafted to bring those goals to fruition. Is a trust the right solution for you? If so what type? Your advisors will know what sort of trust, or trusts, will best serve your and your family’s interests. S/he will also provide other recommendations for securing your estate for your heirs.
If you have a substantial estate to leave and have no firm estate plan, or an outdated one, please consult with our expert financial and estate advisors. We are here for you.
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
I think it’s time we talked about estate planning. Because no matter how old or young you are, you have a legacy – and at least some tangible property.
A will is a legally binding document that allows you to determine how your estate will be handled upon your death. Without a will, there is no guarantee that your desires will be carried out. A will minimizes family conflict by determining the who, what and when of your estate after your passing.
You need a will if there is anything you especially want a given loved one to have. How else can you make sure that, when you die, your best friend Johnny will get the baseball you pitched and he caught for the last out of that unforgettable Little League game?
If you want assets distributed in personal and specific ways, the best way to ensure this is to have a will in place.
Having a will means:
- You can choose your executor and how your estate will be handled.
- You can choose what bequests to leave to whom – what friend gets which keepsake, making sure that if one of your children loves a particular family heirloom more than the other(s), that they receive it, that the charities you’ve supported get a final contribution.
- You can designate a guardian for minor children (make sure the designee is with you on this), or someone to make that choice for your family.
- Your family will breathe easier knowing you’ve taken care of them.
- You avoid dying intestate, placing your estate in the hands of the courts, and a court-appointed executor to distribute according to state law, which process places potentially significant monetary charges upon your estate.
But even if you have had your will drafted, signed, and put in place, you may not be done. Life events can trigger changes.
Review your will periodically, and update as appropriate. Here are some examples of events that could warrant you updating your will:
- The death of a family member or other loved one – whether they are among your listed heirs or not, as the death of someone close often reorders our priorities
- Marriage
- Divorce
- The birth of a child
- A significant change in your personal net worth
- The purchase or sale of your business
Hand in hand with wills go powers of attorney. For married couples, usually the power will be issued to the spouse.
You (and your spouse, if you are married) should each have two different powers of attorney:
- Durable Power of Attorney – this allows a trusted individual of your choice to make decisions, financial, legal, etc., for you. To act on your behalf and in your best interests, as communicated to them by you. This power of attorney can be immediately effective, or set up with a triggering event, such as your incapacity (due to any cause).
- Medical Power of Attorney – this allows a trusted individual to make decisions about your medical care if you are unable to make, or to communicate them, yourself.
If you are married, most states allow a spouse to make medical decisions without a power of attorney, but what if you are divorced, or never married? What if you have a significant other and are not married? Would your choice of healthcare decision-maker be allowed to take over for you if there is not a power of attorney giving them that authority? Almost certainly not, so, no matter whom you choose, be safe and get that medical power of attorney in place.
If your financial planner is on his or her toes, s/he will ask to review your will and powers of attorneys, to ensure they are aligned with your life as it is at present and will remind you to update them when you make significant life changes.
Remember that having your will and powers of attorney in place is a way you can exert control over how your affairs are handled, as well as providing a road map for the handling of your care, your interests, and, finally, your assets.
Not a single one of us can live forever – it’s kind to leave your family and loved ones with the knowledge that they are protected, and will continue to be protected, by your choices and by your wisdom and love.
When was the last time you reviewed your will and powers of attorney?
If you are unsure whether your will needs updating, please consult with our financial and estate advisors – we are here for you!
Please click here to email us directly – let us know how we can help you.
Until next time –
Peace,
Eric
Some of you already know that I have effectively relocated my family to Park City, Utah, for a four-month stretch. Park City has long been one of my favorite places for a getaway, and we’ve spent a good many days and weeks up here, but never this long at one time.
Of course, we are lucky, Jennifer and I, in that we can do our jobs remotely – not everyone has that option.
I’m taking advantage. And there is considerable advantage to be taken – I find the change of scenery does change my perspective – if I let it. And the fresh insights I’ve gained are profoundly useful.
In Utah I have more reflective time – and use it.
I have discovered how much less stuff I need than I thought. I brought tons of books with me, and, while I have done a good bit of reading, I won’t have read nearly all I brought by the time we return home to New Orleans.
Clothes? I packed for all contingencies and find myself wearing the same five sets of pants and shirts over and over.
To me, that’s a valuable change in perspective – and I hope to keep working on having less of what I don’t need. To better curate my life toward what I truly value, with less time and energy spent on what I don’t.
Of course, travel and changes of scenery and working remotely are not without drawbacks – I miss personal interactions with friends, clients, colleagues, and my team. Online conferences are a wonderful tool, but they aren’t the same as in-person interactions.
But there are opportunities for in-person contact everywhere, and an extended stay allows for deeper connections – we’ve found ourselves involved with new people through the church we attend when here, and making a point of meeting our neighbors led us to participation in – you guessed it – a pickleball club! Jennifer and I play several times a week with our new friends.
New friends, too, new voices, new viewpoints, bring new and valuable perspectives with them.
Now, it’s true that wherever you go, there you are.
And you bring with you all yourself – if you have a medical condition, if you take regular prescriptions, this doesn’t magically go away with a change of scene. If you (like myself, like pretty much everyone) struggle in certain situations, you may be able to modify your responses to some degree, but you are still who you are. Warts, angel wings, and all.
But you can look at yourself, and your life, a little differently in the light of beautiful mountains and of new friends’ lives and perspectives. And you can become aware that perhaps more change is possible than you’d thought before.
I’ve been meditating on Marcus Aurelius – who famously wrote, “Soon you’ll be ashes or bones.”
It’s too true. We all come nearer to the end of our lives every day.
Taking some time away, whether for a week’s vacation or longer as Jennifer and I are doing, can help us re-appreciate the delicacy – and the beauty – of life. And how short it is.
We can let that last truth depress us, or we can seize the days we have, and fill them with the things that matter most, living as richly as possible. Why not choose the latter?
What are some of the ways you’ve found a change of scene a truly recreative experience?
Please click here to share your stories with me – I would love to hear them!
Until next time –
Peace,
Eric
We recently discussed the transitioning-out phase of selling your closely-held business. Now, it’s time to talk about what life looks like once you’re no longer involved in the business you spent so much time building and running.
The sun has set on one phase of your life, it’s true, and after selling their businesses, many entrepreneurs feel a profound sense of loss. This is perfectly natural. For much of your life has been about building, growing, and running this thriving business which no longer belongs to you.
You can focus on that sunset if you choose to, or you can realize that as that sun sets, another is rising on your next life-phase. What you make of that phase is up to you – but we have a few suggestions on how you can ensure you don’t go stir-crazy looking at a blank wall as you mourn your loss of your business.
- Ask yourself what you learned during the sale process. This is a first step toward making the sale just one more milestone, like your 21st birthday (or your 65th). You aren’t done – you have a long string of milestones ahead of you.
- Sit quietly with yourself and remind yourself of what you value (outside of all that lovely money you’ve saved, and the additional capital the sale has brought you). See where this thought may lead you.
- Think about activities you enjoy, and those you’ve always wanted to try. If there’s a better time to explore both, I don’t know what it is.
But don’t contemplate too long – one thing you will very likely miss is the activity and human contact running your business day by day provided. Don’t replace this with inactivity and solitude – unless that is precisely what you know you want and need. And even if that’s the case, you are likely to find it won’t hold your full interest for long.
So make a plan to replace the people you won’t see (though by all means keep up with any and all good friends you’ve made through your business) with people you can make time with. Replace the activities no longer on your plate with new ones you choose for no other reason than that you have either always enjoyed them or very much want to try them.
After all, it’s your life. It’s a new phase, and as Shakespeare put it, the world’s your oyster. Open it and find your pearl.
Some things which can help you ease into your new phase:
- Spend quality time with your family – an extended, shared vacation to a place you’ve never visited but have always wanted to see can provide both adventure and reinforced bonds in your most important relationships.
- Reconnect with old friends and make new plans to enjoy their company.
- If you’ve hobbies you are active in, consider a new level of involvement and commitment.
- If you haven’t, are there any hobbies you’ve wanted to cultivate? This is the time to do so.
- New employment is always a possibility – roughly 40% of entrepreneurs start new businesses after selling their old ones.
- Become a youth mentor if that’s something which appeals to you.
- Join boards of other companies or become involved with a non-profit.
- Volunteer to do work for your favorite charity – this can be a great avenue for new action, especially if your charity has need of service within your areas of expertise. One client of ours became a museum docent after retirement and found it very rewarding.
It’s important that you recognize the emotional fall-out of selling your business, your baby (maybe selling your business is slightly analogous to seeing your children grown and independent) and taking steps to avoid sinking into sadness over what you no longer have.
Focus on what you do have and what you are grateful for:
- A lot more capital than you had before you sold, and, if the purchase price includes payments over time, more to come.
- The luxury of more free time, even if you must fill it. Because you can now choose to fill it as you like, with family, friends, travel, community involvement, even starting a new business.
This last point is important, because that very time can weigh heavily on entrepreneurs, once they’ve sold their business.
So, make sure you fill that time with people and activities that spark joy in your life. You have a cornucopia of opportunities available to you – dive in and make use of them. If you dig deep, you’ll find you do have unmet goals, unfulfilled ambitions, even if they aren’t business oriented.
Otherwise, you wouldn’t have sold your business, because, if what you really wanted was to keep running it yourself, no offer was too good to refuse.
Remember that, breathe, and embrace your new sunrise.
If you are considering a potential sale of your business, I recommend strongly that you consult with us before making any major decisions – and the sooner the better, as the process of selling a closely-held business can take a year, sometimes longer.
Please click here to let me know how I can help you.
Until next time –
Peace,
Eric
Congratulations! You and your buyer have successfully navigated your way through the process, and have closed the sale.
Now what? Well, for one thing, you’re not quite done yet. Prior-owner involvement post-sale can mean the difference between success and failure for the new owner(s).
That’s one reason to consider staying involved for at least a couple of months after the sale is accomplished. All the more important if your sale involves installment payments, and you haven’t realized the full price at the time of closing.
Don’t forget that the new owner comes into a steep learning curve, however well prepared on paper. Every business is unique, and yours is new to them. You want them to succeed – help them through the transition.
If you are the lynchpin in the operation of your business, you might want to consider potential tiers of residual involvement:
- Tier 1: Two to three months of full-time involvement. First, you might want to let the new owner shadow you in order to pick up on the details of the role s/he is stepping into. Then, gradually, transition him or her into their new responsibilities.
- Tier 2: Part-time involvement, so that you are available to the new owner as s/he gets the feel of the business, your team, your customers.
- Tier 3: Consultation – either scheduled or as-needed. Make sure this is not too open-ended, though. You do need to leave the business in the good hands you’ve chosen. Life awaits!
Some things you can and should ensure, so far as possible:
- That your team is comfortable with the sale and has met the new owner. Again, we note, so far as possible, because we can’t really control their comfort, at the end of the day – we can only reassure them, so far as we can also be truthful.
- That your customers also know about the sale, and are, again, as comfortable as you can make them with it. Meet with your top clients, along with the new owner, and assure them that the new management is as committed as you have always been to providing the highest level of customer service.
When might you not need to stay on? Well, if, and only if:
- You have ensured the above two points;
- You are handing over a business which runs like a clock without your active participation; your key management, apart from yourself (preferably one or more of whom has been with the business for an extended period, for institutional memory), is staying on, all processes and procedures are thoroughly documented; and
- The new owner does not feel the need for your continued contribution.
In most cases, though, you will be a great asset to your buyer in their transition into the business which was yours for so long – and most buyers will want that advantage.
You can also consider this a final, farewell gift to the business you spent much of your life building, running, nurturing.
If you are considering a transition out of your business, please call our Transaction Advisors, or click here to email us directly – we are here to help you.
Until next time –
Peace,
Eric
The best time to start planning your exit from your business is when you start it up.
However,
- this is the real world, and
- even if you do start planning that far in advance, you have to realize that your plans may change. Any altered circumstance affecting you or your business may have an impact on your planning, and if there is one thing we know about circumstances, it is that they can, do, and will change.
It may happen that what you want for the future of your business changes. It could be that a child who previously showed no interest whatever in your business is now fascinated by it and proving invaluable to you. Your partners may want changes to your Buy-Sell Agreement. A potential buyer you never looked for might make you an offer too good to pass up.
Notwithstanding the above, a clear-but-flexible exit strategy and plan can help you get and keep your business in good running order. In all your decisions, factor in the plain truth that one day, one way or another, you will not be running this business.
There are a number of ways you could exit your business when the time comes (whether that timetable is deliberately set by you or not):
- You may have partners willing to buy you out when you’re ready to leave (please make sure you have a Buy-Sell Agreement in force as soon as possible after the partnership forms).
- You may have one or more family members working with you who want and are prepared to take over when called upon.
- You may want to sell your business to an outside buyer.
- You may consider the business has run its course, and decide to liquidate the assets and retire on the proceeds (plus what you’ve saved toward retirement, of course).
- You could become ill, and be unable to run your business.
- ~50% of marriages end in divorce – you may need to buy out your spouse.
- You may die unexpectedly.
But, however you choose to, or must, exit your business, it’s in your interest to ensure that business has – and keeps – its ducks in a row against that day.
Some recommendations:
- Keep your corporate documents up to date and readily accessible. Update any corporate bylaws or other covenants which need it.
- Keep your financial statements up to date.
- Consider life insurance to provide for liquidity.
- Make sure your will is up to date.
- Ensure all your customer and supplier contracts are current and up to date.
- Maintain employee contracts and update them as necessary (e.g., promotion, lateral transfer between two positions, change in job duties, etc.).
- Leases, such as of real estate or equipment, should always be kept current – or terminated, should the real estate or equipment no longer serve your business’ needs.
- Update your business plan annually, to account for current realities and changing future goals.
- Make certain your team members have been cross trained to cover for one another in emergencies.
- All policies, processes and procedures should be thoroughly documented, step by step.
- In fact, document everything, and make sure you have an efficient and easily navigable filing system for electronic documents. Paper, unless mandated by governmental entities, is as a general rule optional in today’s world.
- Consult your trusted business advisor(s). This person is a major resource who can help you – take advantage whenever circumstances call for their expertise.
Some other considerations are personal – if you are a sole business owner with a family, your business decisions have an impact on them. Be clear about your plans, so as not to blindside your loved ones with a disposition of your business which comes to them ‘out of the blue.’ You don’t have to share each and every little detail, but it will pay off in family peace if they feel their voices are heard.
And if you are considering a potential sale of your business within the next decade, please don’t hesitate to call upon us. We can help you through every step.
Please click here to let me know how I can help you.
Until next time –
Peace,
Eric
2023
- The Portability Election – And Why It’s Important!20 September 2023
- When Do You Need a Trust?13 September 2023
- The Family Meeting on Your Financial Affairs – and Why You Need to Have One6 September 2023
- Why You Need a Financial & Estate Organizer – and What to Put in It30 August 2023
- The Unlimited Spousal Deduction Explained24 August 2023
- Wills and Powers of Attorney – Why You Need Both16 August 2023
- When a Change of Scene Brings a Change of Perspective2 August 2023
- You’ve Sold Your Business – Sunset, or Sunrise? Your Call!26 July 2023
- Passing the Baton: After-Sale Transitions19 July 2023
- When Should You Start Planning to Exit Your Business?12 July 2023
- Independence Day5 July 2023
- Explained – Goodwill in Business Sales28 June 2023
- Opportunity Knocks – RFG is Seeking One Great Tax Manager27 June 2023
- C Corp to S Corp Conversion – is it Right for Your Business?21 June 2023
- Selling Your Business – Taxation of Asset Sales14 June 2023
- AICPA ENGAGE 23!7 June 2023
- Welcome, Summer!31 May 2023
- Selling Your Business – Taxation of a Stock Sale25 May 2023
- What is Your Closely Held Businesses Worth?17 May 2023
- Valuing Your Closely Held Business For Sale10 May 2023
- Getting Your Closely Held Business Ready for Sale26 April 2023
- Temperance and Discipline – on These Hang Other Virtues12 April 2023
- The Smartest People are Often Unhappy – But They Don’t Have to Be!5 April 2023
- U.S. and International Banking – How Many More Shoes Will Drop?29 March 2023
- Strategies to Boost Productivity and Reduce “Busyness”15 March 2023
- Are We Too “Busy” To Be Our Most Productive?8 March 2023
- Preview of Upcoming Email Series8 February 2023
- Leverage the 2023 Estate and Gift Tax Exemptions – While They Last!1 February 2023
- SECURE 2.0 Enacted – Key Highlights25 January 2023
- Emerging Business Opportunity: Peer-to-Peer Loans18 January 2023
- Yes, You Really Can Schedule Creativity!4 January 2023
2022
- Happy New Year! It’s Time for Our Resolutions for 2023!28 December 2022
- Happy Holidays from Rigby Financial Group!21 December 2022
- Retirement Plan Contribution Limits for 202314 December 2022
- Act Now to Take Advantage of 2022 Tax Breaks!7 December 2022
- Self-Care is Also Care for Others30 November 2022
- Thankfulness in Difficult Times23 November 2022
- Payout Rules for Beneficiaries of Inherited IRAs16 November 2022
- Remote Work is Here to Stay9 November 2022
- IRS: Inflation Drives Up 2023 Income Tax Bracket Thresholds2 November 2022
- IRS: 2022 Taxes – Inflation Adjustments26 October 2022
- IRS Proposes Changes to the New 10-Year Payout Rule on Inherited IRAs19 October 2022
- The End of the Stretch IRA – and Ways to Compensate12 October 2022
- 2022 Retirement Plan Contribution Limits5 October 2022
- Ensuring a Happy Retirement28 September 2022
- Taxation in Retirement – Be Prepared!21 September 2022
- Roth IRAs – To Convert, or Not to Convert?14 September 2022
- How Much Stuff Do We Really Need?7 September 2022
- Should You Roll Your 401(k) Into an IRA When You Retire?31 August 2022
- Beneficiary Designations and Why They Matter17 August 2022
- The Ins and Outs of RMDs – Explained10 August 2022
- Allocating Your Retirement Portfolio27 July 2022
- Planning for Retirement in a Volatile Market20 July 2022
- How the SECURE Act Changed Retirement Plans13 July 2022
- When to Hire a Newbie versus an Experienced Pro6 July 2022
- Keep it Going – Forecast v Actuals29 June 2022
- Monthly Financial Forecasts – Explained22 June 2022
- Forecasting Business Goals15 June 2022
- Why It’s Better to Focus on Your Strengths than on Your Weaknesses8 June 2022
- Top Tips to Consider When Selling Your Business1 June 2022
- Buyer’s Tax Considerations When Purchasing a Closely-Held Business25 May 2022
- At Last! JazzFest Returns to New Orleans18 May 2022
- When to Trust Your Gut – and How to Listen to It11 May 2022
- Life After Selling Your Business – What Comes Next?4 May 2022
- Transitioning Out of Your Former Business27 April 2022
- Executing and Closing the Sale13 April 2022
- Life is Finite; Death is Final. In the Meantime . . .6 April 2022
- The Purchase Agreement: Explained30 March 2022
- Effective Sell-Side Due Diligence23 March 2022
- New Proposed IRS Regulations on RMDs16 March 2022
- Amanda Doherty’s Journey9 March 2022
- Allocating the Purchase Price2 March 2022
- Qualified Small Business Stocks – IRS Section 1202 Explained23 February 2022
- Structuring the Sale16 February 2022
- Partnership Buy-Sell Agreements9 February 2022
- Letter of Intent: Explained2 February 2022
- How Do You Find a Buyer for Your Closely Held Business?19 January 2022
- Are You Ready to Sell Your Closely-Held Business?13 January 2022
2021
- New Year, New Goals29 December 2021
- Happy Holidays from Rigby Financial Group!21 December 2021
- It’s Almost 2022 – Are We Still Multi-Tasking?15 December 2021
- The House’s Version: The Build Back Better Act, Explained8 December 2021
- Changes to the Employee Retention Tax Credit in the Infrastructure Investment and Jobs Act1 December 2021
- So Much to be Thankful For24 November 2021
- C. S. Lewis’ “The Inner Ring”17 November 2021
- Measuring Success – Don’t Fall into the Gap!10 November 2021
- Avoid Worry and Anxiety – the Marcus Aurelius Way3 November 2021
- JazzFest’s Return Delayed – But Don’t Give up Hope!27 October 2021
- Hurricane Ida – Unreimbursed Business Losses20 October 2021
- Hurricane Ida – Insured Business Losses13 October 2021
- Hurricane Ida – Unreimbursed Personal Casualty Losses6 October 2021
- Hurricane Ida – Covered Personal Casualty Losses29 September 2021
- Roth Accounts – New Proposed Limitations Explained23 September 2021
- Explained: Proposed Tax Changes from the House Ways and Means Committee15 September 2021
- Hurricane Ida – Business Loss of Income Claims9 September 2021
- RFG is Here to Help Your Business Recover7 September 2021
- Hurricane Ida – Insurance Coverage & Mandatory Evacuations2 September 2021
- Tax Relief for Victims of Hurricane Ida31 August 2021
- How to Manage Your Work Day More Effectively25 August 2021
- Helping People, Giving Back18 August 2021
- Make Work Simpler: The Eisenhower Decision Matrix11 August 2021
- Understanding Effective Strategies for Wealth Management10 August 2021
- Update – PPP Loan Forgiveness4 August 2021
- How I Prioritize – The Four Burners Theory28 July 2021
- The Green Book – President Biden’s Tax Proposals21 July 2021
- The Privacy of Your Tax Data? Fuggeddaboutit!14 July 2021
- What JazzFest’s Return Means to Me7 July 2021
- Creating a Digital Estate Plan1 July 2021
- Expect the Unexpected IX –10 Things NOT to do in a Crisis30 June 2021
- Expect the Unexpected VIII – Top 10 Things to Do to Prepare for a Crisis23 June 2021
- Expect the Unexpected VII – Communicating Your Plan15 June 2021
- Strategies for Generational Wealth Transfer15 June 2021
- Expect the Unexpected VI – Testing Your Plan8 June 2021
- Expect the Unexpected V – Technological Risks2 June 2021
- Expect the Unexpected IV – Ensuring Business Continuity26 May 2021
- How Tax Increases May Impact Your Succession Plan: Things You Should Know25 May 2021
- Expect the Unexpected III – Designing Your Response Strategy19 May 2021
- Expect the Unexpected II – Identifying Your Risks12 May 2021
- What Are Some Things You Can Do in 2021 To Position Yourself and Your Business for a Potential Tax Increase?11 May 2021
- Expect the Unexpected – Why a Closely-Held Business Needs to Plan For Contingencies5 May 2021
- War Stories – Katrina28 April 2021
- Is Your Business Doing Enough – Or Any – Succession Planning?26 April 2021
- New Updates: PPP Loan Forgiveness, Part 221 April 2021
- New Updates: PPP Loan Forgiveness, Part 114 April 2021
- Are You Doing Enough — Or Any — Succession Planning?12 April 2021
- Remote Life7 April 2021
- New SBA Guidance Changes PPP Rules for Schedule C Filers31 March 2021
- SBA to Administer New Grant Program for Shuttered Venue Operators29 March 2021
- Learn Better – the Feynman Way24 March 2021
- IRS Extends 2020 Filing, Tax Payment Deadline to May 17, 202118 March 2021
- 2021 – Why You Should Plan for Your Estate This Year17 March 2021
- Anger: Don’t Run Your Motor on Bad Fuel10 March 2021
- Progress on COVID-19 Relief3 March 2021
- Expectation Versus the Open Mind24 February 2021
- Unpacking the Proposed House COVID Pandemic Relief Bill17 February 2021
- What’s Your Story?10 February 2021
- PPP Round II Loans – What’s New?27 January 2021
- Busy Does Not Mean Productive20 January 2021
- It Took Me a While to Realize . . .13 January 2021
- The ERC – 2020 v 20216 January 2021
2020
- COVID-19 Relief – Year-End Legislative Roundup31 December 2020
- Happy Holidays24 December 2020
- COVID-19 Relief? Not Yet!23 December 2020
- COVID-19 Relief? Negotiations Continue18 December 2020
- Congressional Compromise? $908 Billion for COVID Relief in Two Bills16 December 2020
- What a Biden Presidency Might Mean for Estate Taxes, Wealth Transfers, and Inherited Assets9 December 2020
- What a Biden Presidency Might Mean for Business Taxes2 December 2020
- New IRS Guidance – Expenses Paid with PPP Loan Proceeds Are Not Deductible25 November 2020
- What a Biden Presidency Might Mean for Individual Taxes18 November 2020
- 2021 – Tax Policy and the All-Important Senate11 November 2020
- SBA Issues New Requirements for PPP Loan Justification5 November 2020
- Can Our Smartphones Make Us Less Smart?28 October 2020
- How to Save Money in a Difficult 2020 With Tax Planning21 October 2020
- PPP Loans – New Guidance for Loans Under $50K, Clarification on Deadlines14 October 2020
- The Overscheduled Life – and How to Avoid it7 October 2020
- PPP Loans – Updated Guidance30 September 2020
- Unplug and Breathe23 September 2020
- Travel and Human Connection16 September 2020
- Humble and Kind9 September 2020
- How Do You Make a Beautiful Day?2 September 2020
- Independence or Interdependence? It’s a False Choice!26 August 2020
- What is fellowship19 August 2020
- Guidance on Executive Order Regarding Social Security Taxes12 August 2020
- Serendipity5 August 2020
- Education in the Time of Coronavirus30 July 2020
- Wait! Why it Doesn’t Make Sense to Apply for PPP Loan Forgiveness Yet22 July 2020
- Reap the Benefits of Deliberate Practice15 July 2020
- SBA Begins Accepting New PPP Loan Applications; Good Faith Certifications8 July 2020
- House Joins Senate, Passes Extension to Apply for PPP Loans2 July 2020
- PPP Loans – Early Forgiveness Available, SBA Issues New Forgiveness Applications24 June 2020
- PPP Loan Forgiveness – SBA Issues New Interim Final Rule17 June 2020
- New Guidance – Partial PPP Loan Forgiveness Intact10 June 2020
- Senate Passes Bill to Relax PPP Loan Forgiveness5 June 2020
- House Passes Bill to Relax PPP Loan Forgiveness3 June 2020
- Senate Unanimously Passes Extension to Apply for PPP Loans1 June 2020
- PPP Loan Forgiveness – SBA Issues 2 New Interim Final Rules28 May 2020
- SBA Issues PPP Loan Forgiveness Application20 May 2020
- PPP Maximum Allowable Forgiveness Amount13 May 2020
- IRS Now Says No Tax Deduction For PPP Covered Expenses6 May 2020
- UPDATE – House Passes Additional Funding for Small Business Relief29 April 2020
- The Virtual CFO Minute Episode V29 April 2020
- Senate Passes Additional Funding for Small Business Relief22 April 2020
- The SBA Changes its Mind Again – New Guidance on PPP Loan Applications For Partnerships15 April 2020
- The Paycheck Protection Program Could Help Your Business Now7 April 2020
- Senate Reaches Agreement on Third Coronavirus Stimulus Bill25 March 2020
- Fact versus Fiction – Tax Filing and Payment Deadlines19 March 2020
- Be Safe, Be Alive!18 March 2020
- Talent – or Skill?11 March 2020
- The Virtual CFO Minute – Episode IV4 March 2020
- To Be Or Not To Be Overwhelmed – It’s Your Choice26 February 2020
- Know What to Expect19 February 2020
- The Virtual CFO Minute – Episode III12 February 2020
- The Virtual CFO Minute – Episode II5 February 2020
- The SECURE Act of 201929 January 2020
- The Virtual CFO Minute22 January 2020
- Overcoming Obstacles15 January 2020
- January 2020 Challenge7 January 2020
2019
- Happy Holidays!18 December 2019
- Success11 December 2019
- How to Spark Joy in Your Life3 December 2019
- An Umbrella is Not a Satsuma27 November 2019
- Margins – When is it Better to Color Inside the Lines?20 November 2019
- In Crisis? Text 741741 to be Seen and Heard13 November 2019
- Employing Family Members6 November 2019
- The Future is Female31 October 2019
- Dashboards – How Can They Help You Run Your Business?23 October 2019
- The Third Biggest Reason to Hire a Virtual CFO16 October 2019
- The Second Biggest Issue We See With Not Having a Virtual CFO – And How To Overcome It!9 October 2019
- The Biggest Issue With Not Having a Virtual CFO2 October 2019
- The Power of Having a Virtual CFO24 September 2019
- 9 TO 517 September 2019
- Keeping Up With the Joneses11 September 2019
- Use Your Best Judgement28 August 2019
- Post For 201913 August 2019
- The Amazing Internet7 August 2019
- Are You Really Listening?31 July 2019
- Wimbledon 2019 – Never, Never, Never Give Up!24 July 2019
- The Mountain and I17 July 2019
- Tax Planning for 2019 – It’s Time!10 July 2019
- Be More Effective – Put Some Slack in Your Schedule19 June 2019
- Invictus12 June 2019
- Chainsaw or Scalpel?5 June 2019
- This Will NOT “Only Take A Minute”29 May 2019
- The Meditative Mind in the Digital Age22 May 2019
- Got Worries?15 May 2019
- I Think I Have the Post Jazz Fest Blues8 May 2019
- Qualified Opportunity Zones – New Proposed Regulations1 May 2019
- Make Things Better – A Controversial Statement?29 April 2019
- 5 Steps To Make Your Presentation More Persuasive10 April 2019
- To Outsource, or Not to Outsource? It Turns Out That is a Question3 April 2019
- Proper Prior Planning Prevents Poor Performance27 March 2019
- The Avocado Principles17 March 2019
- Practice Makes . . .13 March 2019
- Four Rules for Deep Work · Rigby Financial Group27 February 2019
- Do-Overs20 February 2019
- Can We Make Ourselves More Intelligent?20 February 2019
- The Power of Authenticity13 February 2019
- This is Marketing6 February 2019
- Opportunity Zones – Deferral of Gains Offers Flexibility for Investors30 January 2019
- Saints Rammed by the Zebras23 January 2019
- Slow Down and Appreciate Life16 January 2019
- After the Holidays . . .9 January 2019
2018
- Happy Holidays!19 December 2018
- 2018 Year-End Top Tax Planning Tips12 December 2018
- Christmas Reflections – What Are You Grateful for This Year?5 December 2018
- Put a Shine on Your Shoes and in Your Heart28 November 2018
- What Will You Be Drinking This Thanksgiving?21 November 2018
- Be Great, Be Remarkable!14 November 2018
- Free Days and Why They Matter7 November 2018
- Should You Play Trick or Treat with This Stock Market?31 October 2018
- How to Save on Your Taxes Through Investment in Qualified Opportunity Zones24 October 2018
- A Thing of Beauty is a Joy Forever10 October 2018
- The Hidden Brain26 September 2018
- Thoughts on Hurricane Florence19 September 2018
- Thoughts on a Legend’s Retirement13 September 2018
- Autumn Transitions and Opportunities29 August 2018
- Qualified Opportunity Zones Offer Potential Tax Savings22 August 2018
- Qualified Business Deduction of 20%15 August 2018
- Post For 201813 August 2018
- Don’t Limit Your Own Happiness – 5 Traps to Avoid8 August 2018
- How to Implement Your Goals1 August 2018
- 7 Characteristics Shared by the Most Productive People25 July 2018
- Make Your Vacation Last Longer11 July 2018
- Focus and Create: 10 Thoughts for Entrepreneurs27 June 2018
- 5 Tactics to Help You Get Through Hard Days20 June 2018
- How to Avoid the Top 5 Mistakes Entrepreneurs Make13 June 2018
- 7 Steps to Take While in Transition6 June 2018
- Stop Being Your Harshest Critic!23 May 2018
- Being Worthy of Trust16 May 2018
- Can Slowing Down Make You Happier? More Productive?9 May 2018
- There’s Only One Happiness in This Life – to Love and be Loved2 May 2018
- Free Days – Rest and Rejuvenation Matter!25 April 2018
- Self-Talk – How the Tough Get Going18 April 2018
- Avoiding Financial Envy11 April 2018
- Practicing Creative Gratitude4 April 2018
- Everybody’s Got Somebody to Thank28 March 2018
- How to be Better Informed While Reading Less21 March 2018
- Does Vulnerability Lead to Confidence?14 March 2018
- Finding Better Solutions7 March 2018
- Hope Springs Eternal28 February 2018
- 4:00 A.M. – The Most Productive Time of Day21 February 2018
- Be Present and Avoid FOMO14 February 2018
- Explore New Places and Expand Your Mind7 February 2018
- How to Take More Time Off and Be More Productive31 January 2018
- One Key to Success – Doing Less!24 January 2018
- Tax Reform 2017 – What Does It Mean For Your Business?17 January 2018
- Tax Reform 2017 – What Will it Mean For You and Your Family?3 January 2018
2017
- Success With Humility – The Manning Way27 December 2017
- The Search For Happiness19 December 2017
- Proper Prior Planning Prevents Poor Performance13 December 2017
- Risk Management and Snow Skiing29 November 2017
- Who Says You Can’t Buy Happiness?22 November 2017
- Investing – a Marathon, not a Sprint15 November 2017
- Why Does Money Matter to You?9 November 2017
- Breaking News – White House and Congressional GOP Leaders Announce Tax Reform Blueprint28 September 2017
- Senate Agreement Opens a Road to Tax Reform27 September 2017
- Succession Planning: What Business Owners Need to Know6 September 2017
- The Outlook for 2017 Tax Reform8 August 2017
- U.S. Economic Performance: January 1 through June 30, 201720 July 2017
- Tax Reform: 1031 Exchanges22 June 2017
- Tax Reform Status25 May 2017
- What We Think Tax Reform Should Look Like27 April 2017
- Deep Work – How to Get More Done in Less Time15 February 2017