Every Business Owner Should Set WEALTH PRIORITIES
Planning for the transfer of your wealth will focus you on the options and help you perfect your timing which may be critical to maximizing your current and future personal and family income.
The extraordinary increase in stock prices and then the dramatic decline over the last period along with constantly changing tax laws are causing many people to re-evaluate their estate plans. In addition, the aging and retirement of the World War II generation is creating the greatest transfer of wealth that has ever occurred in this nation's history. How should the owners of private businesses approach their estate planning?
Here are some suggestions:
1. Business owners should establish wealth priorities.
First, they must plan for themselves by determining the income and net worth required to maintain their lifestyle, including allowances for future health care costs. Second, they should plan for their families. They can choose between current needs and inheritance. Current needs might involve (grand)children's educations, homes, and other discretionary gifts. Third, they might plan to help others through current or future philanthropic activities.
2. Business owners should determine the optimum disposition of their business.
Typically, there are three basic alternatives:
* Full or partial sale to a family member, insider, third party, the public.
* Gifts or bequests to others, including charitable institutions.
* Liquidation of the business (a variant of the first alternative). Each alternative implies different standards and premises of value. As such, it is essential that priorities and plans be developed before undertaking a valuation. A valuation in contemplation of sale potentially involving a “strategic” buyer whose business fits with the company may lead to a high price under an "investment value standard." Gifts and bequests usually imply fair market value (the value to “a hypothetical willing buyer”) and may involve discounts for fractional interests. Liquidation is another scenario altogether. A business can have many different values at the same time, depending on the purpose for which it is appraised. This is based on the owner's overall goals and objectives, which only he or she can define, in conjunction with a team of professional advisors.