Selling your business may be the most important financial event in your life. Common questions include:
- What is my business really worth?
- How do I get the highest sale price possible?
- What is the right deal structure?
Naturally, these key questions are addressed almost immediately by your corporate deal team. There are, however, additional trust and estate planning strategies that are often overlooked but can deliver as much value as a dramatic increase in sale price.
Three Tax-Saving Strategies to Implement Now
If the sale of your business will be successful enough to leave you with more money than you wish to spend during your life, then there are really only three places this extra money can go: to your family or other loved ones, to charity, or to the government in the form of taxes.
Unfortunately, taxes can be a significant impediment to realizing the full value of your business upon its sale. A careful analysis of the multitude of taxes that may apply in selling your business is crucial to maximize the proceeds that you’ll receive in the deal. Not only will you want to minimize income taxes on the immediate sale of the business, but you should also consider the taxes that may apply when the money you’ve earned in selling the business passes to the next generation of your family (or your desired beneficiaries).
Sharing wealth with loved ones often means benefiting the government by paying gift and estate taxes (collectively called “transfer taxes”), which are assessed on transfers made during life or at death that exceed a certain total amount (currently, $12.92 million). These transfer taxes can be 40% or higher, depending on the state you live in, how much money you give away, and your relationship with the gift recipient. Maximizing the amount that goes to your loved ones and minimizing the amount of transfer taxes due involves careful advance planning.
While an analysis of your wealth planning needs is highly personal, there are several common estate planning strategies that work well for many business owners. Following are three of the most popular strategies that business owners can use to transfer wealth to their families in connection with the sale of their business. These techniques can help business owners save transfer taxes even if the sale of the business does not happen for many years. In fact, many of these strategies work best when they are implemented long before the business is sold.
These illustrations assume that the business owner desires to pass wealth to his or her children. However, these strategies can work equally well if the business owner instead desires to pass wealth to another family member or friends. Another great technique is to incorporate charity in the plan, but that strategy is beyond the scope of this article. For detailed information on charitable giving strategies, please contact your BBH relationship manager or wealth planner.