Follow Dallas Linkedin
Email Dallas Email
Financial
Aug 1, 2017

Which Comes First - Estate Planning Or Exit Planning?

Sponsored Content provided by Dallas Romanowski - Managing Partner, Cornerstone Business Advisors

A successful business exit plan achieves three important owner goals:

  • Financial security. The business sale or transfer provides the amount of income the owner and owner’s family need after the owner’s exit.
  • The right person. The owner chooses his or her successor (children, key employees, co-owners, or a third party).
  • Income tax minimization. The owner minimizes the amount of cash the government takes out of his or her pocket.
A successful estate plan achieves three important personal goals:
  • Financial security. For the decedent’s heirs.
  • The right person. The decedent, rather than the state, chooses who receives his or her estate assets.
  • Estate tax minimization. Reduces the government’s bite, leaving more funds for the decedent’s heirs.
Once owners see that the two processes share the same goals, they can appreciate how to leverage the time and money they spend developing their exit plans into the design of their estate plans.

For example, when owners engage in exit planning, they most likely determine their objectives and secure an estimate of value on their businesses before they start working to create greater business value. In securing an estimate of value, owners possess a piece of information that’s critical to both their business continuity plans and estate plans.

Thinking of exit planning and estate planning in tandem allows you to ask relevant questions to bring your entire picture into focus:
  • If you do not exit the business on the planned business-exit date, how will you provide your family with the same income stream your family would have enjoyed if you had?
  • How can you make sure that your business retains its previously determined value?
  • Regardless of whether your exit plan involves transferring part of the business to your children, does your estate plan reflect and implement your wishes if you do not survive?
  • If you die before exiting the business, can you be certain that your family will still receive the full value of the business? (This question is especially important to answer for sole owners. Sole owners are unlikely to have a Buy-Sell Agreement because there are no remaining co-owners to purchase and/or continue the business.)
While estate plans can manage these issues, owners must determine whether their estate plans address these issues.

Another goal of The BEI Seven Step Exit Planning Process™ is to protect assets from creditor attack during an owner’s lifetime and minimize tax consequences upon a transfer of ownership. You must ask yourself, Does my estate plan work to minimize creditor risk for both me and my heirs? It is possible to achieve these goals through both exit and estate plans.

It is worth repeating that owners must devote the same energy and analysis to lifetime transfers (benefiting themselves) as they do to a transfer occurring at their death (benefiting their families). Since planning exits from both business and life are based on the same premises, it can be relatively easy to develop a consistent outcome.

The following two facts may help you determine which plan to undertake first:
  • Estate taxes are easier to avoid than income taxes.
  • Estate planning techniques often involve funding from life insurance proceeds, which pay in cash upon death, whereas exit planning techniques often involve the owner’s own funds (accumulated over decades).
There isn’t one categorically correct answer to the estate or exit planning question. In the end, you must act on both fronts, since a failure to act in either case creates lasting problems not only for you but also for your business and family.

We can help you decide which plan to approach first. Contact us today to get started.

© Copyright 2017 Business Enterprise Institute, Inc. All Rights Reserved
 
As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s content and Exit Planning Tools.

The Cornerstone team includes former C-Level executives, successful entrepreneurs and advisers who offer unmatched experience in delivering advanced, custom-tailored, results-oriented solutions for business leaders. We developed the Performance Culture System™ to help clients implement best practices and drive high performance throughout their organization. For more information, visit www.launchgrowexit.com, call (910) 681-1420 or email [email protected].
 

 

Other Posts from Dallas Romanowski

Bizjournalblockad
Ico insights

INSIGHTS

SPONSORS' CONTENT
Untitleddesign12 11724100328

The Endowment’s Rainbow of Possibilities

Daniel B Winslow - New Hanover Community Endowment
Burrus rob headshot 300x300

Understanding Tariffs and Their Impact on Wilmington's Economy

Robert Burrus - Cameron School of Business - UNC-Wilmington
Untitleddesign14 352591554

Managing Uncertainty With Certainty of Execution

David Rizzo - First Carolina Bank

Trending News

Tech Wilmington: Upcoming Events Calendar

Staff Reports - May 14, 2025

Wilmington Trade Center Breaks Ground On Next Phase

Emma Dill - May 15, 2025

Downtown Tract Bought By Hotel Developer For $6.8M

Emma Dill - May 13, 2025

Better Business Bureau Recognizes Two Wilmington Companies

Staff Reports - May 13, 2025

Wilmington-based Outdoor And Adventure Education Center Earns Accreditation

Staff Reports - May 13, 2025

In The Current Issue

Creating A Full-time Fishing Gig

His busy season for charters is April through November. During those months, he’ll typically do charters about five to six days a week, taki...


Meet The 2025 CEA Winners

Who would you invest $100,000 in? That’s a piece of advice given to the Coastal Entrepreneur Award judges as they make their picks....


Projects Give Town A Sand Infusion

Town officials said the improved channel will enhance navigation for both commercial and recreational boaters, along with the advantages of...

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2024 Power Breakfast: The Next Season