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

2. 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

3. “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

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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.

11. Steps to Creating and Implementing a Succession Plan1
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

12. 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