Stinson.com © 2013, Stinson Morrison Hecker LLP Passing the Torch Without Dousing the Flame Estate Planning for Closely Held Business Owners By: Charles A. Redd January 21, 2013

Stinson.com© 2013, Stinson Morrison Hecker LLP Introduction The challenge The ultimate objective Need to address succession of: –Ownership –Control –Management Different from estate planning 2

Stinson.com© 2013, Stinson Morrison Hecker LLP Know the Players Owner –Issues: control, potential financial insecurity, children not ready Spouse –Involved or not involved but must be listened to Children –Desire? Ability? Relationships? Business itself 3

Stinson.com© 2013, Stinson Morrison Hecker LLP Disposition During Owner’s Life Sale of the Business –To third parties –To the children Gifting strategies –Lifetime exemption amount gifts $5.25 million per donor –Annual exclusion amount gifts $14,000 per donee –Separating ownership and control 4

Stinson.com© 2013, Stinson Morrison Hecker LLP Securing Retirement Income Sale to grantor trust Sale for private annuity GRAT Non-qualified deferred compensation plan Dividend/distribution policy Long-term leases Consulting agreements 5

Stinson.com© 2013, Stinson Morrison Hecker LLP Active vs. Non-Active Children Conflicts between insiders and outsiders –Outsiders don’t like insiders compensation and benefits and/or business decisions –Insiders resent outsiders’ equity values benefitting from insiders’ efforts Conflicts among insiders What is “fair”? 6

Stinson.com© 2013, Stinson Morrison Hecker LLP Four Business Equity Disposition Options Transfer equally to all children Transfer to active children; make equalizing transfers to inactive children Transfer to active children; make compensating transfers to inactive children Transfer equally to all children; include redemption provisions 7

Stinson.com© 2013, Stinson Morrison Hecker LLP Implementation Trusts –Allocation to certain trusts –Dispositive provisions –Selection of Trustees –Administrative powers –Protection from outside threats Buy-sell agreements –Tax and non-tax considerations Marital agreements 8

Stinson.com© 2013, Stinson Morrison Hecker LLP Conclusion Complex legal, tax, financial and emotional issues With careful, cooperative planning, a successful transition to the next generation can be accomplished 9