What to Consider for Personal Wealth and Estate Planning

Written by: Elizabeth J Mower

When we talk about The BEI Seven Step Exit Planning Process™, we refer to Step Seven as Personal Wealth and Estate Planning. However, some owners don’t want to wait until the end of the Exit Planning Process to begin planning for how they’ll manage their personal wealth and estates upon exiting the business. Fortunately, they don’t have to: If owners have already established their goals, determined their Asset Gap, and learned how to build and protect business value, they can begin personal wealth and estate planning right away, even before choosing an Exit Path. Personal wealth and estate planningis how many business owners introduce themselves to Exit Planningin the first place. For most business owners, their businesses are the most valuable asset they have. So, their businesses drive their actions regarding wealth and estate planning. As owners approach their exits, it’s important that they consider two questions related to their personal wealth and estate planning:
  • Will my family be able to maintain the lifestyle I want for them?
  • Will my business transfer according to my wishes?
  • Business owners should expect their Exit Planning Advisors to ask them these questions. Most owners don’t consider these questions because (a) they often assume their plans will go off without a hitch and (b) no one has ever thought to ask these questions. Let’s look at how answering these questions can give business owners the best opportunity to capitalize on their personal wealth and estate planning.

    Will My Family Be Able to Maintain the Lifestyle I Want for Them?

    As we’ve discussed before, business owners are most concerned about how their business exits will affect their families and their futures. Ironically, one of the things business owners take for granted most about their ownership is the income it provides their families. When combined with the fact that many business owners vastly underestimatehow much money they and their families will need post-exit, most business owners without an Exit Plan are setting themselves up for post-exit failure.Exit Planning lets owners address the issue of maintaining lifestyles post-exit. It all starts when business owners realize just how important they are to their businesses. When owners understand that their employees, customers, and vendors work with their businesses because of their personal trustworthiness, they can understand how their absence will affect the business and, subsequently, their families. With the right planning, owners can mitigate this risk, because the personal wealth and estate planning portion of Exit Planning addresses two risks:
  • Not Having Enough Money to Maintain Their Lifestyle Post-Exit: This is a risk that most commonly affects owners who don’t have a written Exit Plan. Exit Planning requires owners to professionally determine how much they’ll need to maintain their lifestyles post-exit, which makes it less likely that those owners will need to go back to work unless they choose to. Another aspect for owners to consider is how taxes on the sale of ownership will affect the final sale price. Without proper wealth and estate planning, owners can watch an eight-figure sale price dwindle down to seven or even six figures. Exit Planning Advisors work with tax and M&A specialists to help business owners protect themselves from overtaxation in the context of a business exit.
  • Failing to Adjust to the Loss of Income: Whether business owners leave their businesses at lifetime or at death, the loss of income can financially strain them unless they have strong plans. Exit Planning helps owners and their families avoid this strain by assuring that they can maintain their lifestyles using the sale price received from the transfer of ownership and properly invested non-business assets. There are numerous ways to do this—from Salary Continuation Plans to reapportioning investments more appropriately—and Exit Planning Advisors have the resources and people necessary to help owners do so in ways that address their specific needs.
  • Related: Succession Planning Challenges: Keeping It Simple and Focused

    Will My Business Transfer According to My Wishes?

    There are two ways to consider this question. First, in terms of a lifetime exit: Under the umbrella of Exit Planning, ownership transfers are clear, written, and binding. This lets owners project the amount of money they will have available to invest, and how much they’ll choose to pass down to children, grandchildren, or others. Some business owners place a special importance on assuring that they don’t give their descendants too much money, and a proper estate plan within the context of Exit Planning allows them to achieve this goal.Second, in terms of an at-death exit: In our previous article, we discussed how important it is for owners to protect their businesses against their unexpected death. Just as important is assuring that the owner’s chosen successor receives the business as an enforceable obligation. Whether this obligation takes the form of a right to buy or a bequest, written documentation is crucial to assuring that the right successor receives the business. Business owners can create and implement that written documentation as a function of Exit Planning.For business owners who don’t have a chosen successor, estate planning in the context of Exit Planning is still crucial. Without explicit documentation, it’s impossible for owners to achieve their values-based goals for their businesses upon their deaths. This is especially true for owners whose goals include “keeping the business in the community” or “maintaining family harmony.” Estate planning in the context of Exit Planning requires written and actionable orders regarding an ownership transfer at death, which can be created and implemented by an Exit Planning Advisor and the Advisor Team in such an event.Estate planning and Exit Planning go hand in hand for business owners who desire control over their post-exit lives. With help and guidance from an Exit Planning Advisor, business owners often find that personal wealth and estate planning flows seamlessly with their plans for a business exit.