Diagnostic Tools for Estate and Business Succession Planning October 1, 2018 Diagnostic Tools for Estate and Business Succession Planning Sarah Kerr Severson

Three known variables: People are human. Changes happen. The big ones begin with “D”: Divorce Disability Death So how does one do effective planning*? *“Plans are nothing. Planning is everything.” – Dwight D. Eisenhower

“The Periodic Table” of Estate Planning Tax Planning Taxable vs. Tax Free Tax Reduction Plan Alternative Minimum Tax Investment Management Manager Selection Portfolio Construction Monitoring Investments Rebalancing Parents Healthcare Living Expenses Housing Child Living Expenses Special Needs Guardianship Education Planning 529 Plans Custodial Accounts Education Savings Acct’s Minors Trusts Asset Allocation Risk Tolerance Stocks – Bonds – Cash Alternative Investments Strategic vs. Tactical Active vs. Passive Healthcare Spending Accounts COBRA Medigap Insurance Income Coordination of Social Security, Pension, and Investment Income Liability Insurance Umbrella Coverage Directors & Officers Coverage Income Protection Disability Insurance Business Overhead Charitable Giving Direct Bequests Donor Advised Funds Charitable Trusts Private Foundations Heirs Asset Titling Annual Gifting Beneficiary Planning Transfer on Death Estate Transfer Trusts Living Trust Credit Shelter Trust Special Needs Trust Generation Skipping Residence Trust Commercial Lending Business Banking Commercial Real Estate Equipment Leasing Franchise Finance Tailored Lending High Net Worth Personal Lending Business Lending Securities-Based Lending Express Credit Line Control & Restricted Stock Lending (EFS) Letters of Credit Home Loans Mortgages Home Equity Line of Credit Borrowing Needs Estate Planning Wills Durable Power of Attorney Health Care POA Living Will Family Concentrated Stock Positions Hedging and Diversification Strategies Wealth Distribution Gifting Creditor Protection Retirement Retirement Plans IRAs / Pension Plans 401(k) / 403(b) Review Designated Beneficiaries Risk Issues Goal Protection Life Insurance Review Long Term Care “The Periodic Table” of Estate Planning 3

The Problem: Today’s Business Owner Landscape 75% of business owners are age 51 or older. 83% of business owners agree that succession planning is important to the future of their business yet 66% have no plan at all. The vast majority of family businesses have no written strategic plan and/or no buy-sell agreement. One third of business owners don’t have even a simple will.

Factors to Consider During Examination of Status Quo Business Considerations Personal Considerations Mature/Growth Market Accelerating/Declining Profit Opportunity Capital Required Favorable/Unfavorable Environment Attractive/Unattractive Current Valuation Nearing Retirement Age Family Considerations: Strong Successor or No Successor Energy to Continue Health Considerations Proceeds Sufficient to Fund Lifestyle

Starting the Conversation ASK ABOUT THE STATUS QUO: BE SPECIFIC AND KEEP IT REAL Good and Not-So-Good Characteristics of the Family Business Business Challenges Business Goals Level of Communication and Commitment Business Succession Plan Management and Board of Directors Key Manager Retention and Incentive Tools Key Manager Agreements and Restrictive Covenants

Valuation of Business 9. Insurance Personal Business Are disability, life and Keyman policies coordinated with and right- sized for your estate plan and shareholder agreement? 10. Buy-Sell Agreement 11. Valuation 12. Estate Planning 13. Gift Planning

Why Act? Consequences of Failure to Plan: Fire sale of business for an amount below market value Unqualified successors running the business Litigation and conflict among dissatisfied heirs Lack of income for heirs and liquidity for estate taxes Valuation disagreements

Revelations of Status Quo Examination Unmanaged Expectations Unnecessary Risk Role Confusion Within Family Within Business Lack of Structure Lack of Preparedness Death Disability Retirement Divorce Taxes i.e. Insurance Includable in Estates

Maintaining Flexibility is Key Owner may not know whether she eventually will sell the business or her interest. They “Might”. Owner’s children, not yet at an age to determine interest/ability to be involved in business. Owner identifies employees to succeed to business, but employees may not be able or willing. Owner wants to continue to operate business unless “the right offer came along.” Always keep option open for Owner to pass it on to children in a tax-advantaged manner. DO NOT commit to any one specific strategy focused on specific outcome (e.g. succession to the business by family members, or sale in a tax-advantaged format). Strategies have to work in different scenarios.

Steps to Creating and Implementing a Succession Plan 1 Investment Banker 1 Business Valuation Expert Communicate Commit Assemble the Team Identify the Quarterback Wealth Manager Corporate Accountant Membes of the Team Members of the Team Lending Specialist Personal Accountant Family Governance Advisor Corporate Attorney Trust and Estate Attorney Trust and Estate Attorney

Wrapping Up: Keys to Successful Implementation Develop family mission statement and company mission statement Identify family objectives consistent with mission statement Break down plan into achievable parts Set specific goals and time table Measure tax and non-tax impact of plan Establish communication guidelines and regular meetings Engage outside advisors as appropriate for both family and company Implement corporate level plan and trust plan Maintain family commitment