Planning Ownership & Value Transfer

Generally speaking there are only four paths a business owner can take to voluntarily leave his or her business:

• Transfer to an insider - such as key employees, partners etc.
• Transfer to heirs apparent
• Sell the assets to third parties
• Sell the stock to third parties

This article will focus on issues relevant to the transfer of ownership and value to heirs. Transferring to anyone, let alone family, is fraught with many perils. My experience is that a successful transfer is seldom reached (one in ten), an abysmal record.

Why should the best of intentions of a business owner to pass their business interest to their children succumb to such failures?

Traditional reasons for this failure are:

• Estate taxes can consume up to 40 percent or more of business value
• Successors lack ability or commitment
• Owners are reluctant to give up control
• Family issues prevent agreement on fair distribution

Even though these are all valid reasons, they side step the core issue – a lack of a planning process and unified approach that can surmount these obstacles.

“A journey of a thousand miles must begin with a single step”
Lao Tzu

In order to make this arduous undertaking less overwhelming, it is best if this process is broken down into smaller, more manageable tasks. Business owners need to know where they are, where they need to go, how to get there, and whom to take with them.

The following are key issues that a process must include:

I. Your goals & objectives: When do you want to leave? What is the capital cost to help secure your retirement? What is the income need in retirement?
II. Flexibility to take on unforeseen problems and obstacles: Leaving the business before child or children are ready to assume control, transferring business when not all children are active in it, transferring the business to more than one active child
III. Financial independence – create, maintain and help secure income stream
IV. How to retain control and help protect your interest
V. Strategies for the most confiscatory tax in our tax code – The Death Tax

Once they have an overview of a process, the business owner can modify or adapt to changes and difficulties along the way without losing sight of the final objective: transferring the business to an heir and living to tell about it.

Lou Tucci can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

Louis A. Tucci is a registered representative of and offers securities and investment advisory services through MML Investor Services, Inc., member SIPC (www.spic.org). Supervisory Office: Overlook & Great Notch, 150 Clove Rd. 6th Floor, Little Falls, NJ 07424, Tel: 973-237-0100. The views expressed here are those of Louis Tucci and not necessarily those of Massachusetts Mutual Life Insurance Company (MassMutual) or its subsidiaries. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees, or representatives are not authorized to give legal or tax advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal tax or legal counsel.