While “now” is always the time you should start getting your exit plan ready for your business, there are some guidelines about specific year marks that you should use to think about what will happen next. Here is the best advice for exit plans.
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Starting ten years in advance is the best way to maximize opportunities. This is because at this marker, you can start really considering whether the business is intended as a family legacy. If a family member will be taking over the business, the ten year period is a great planning point for incorporating those family members into training and education. Ultimately, this will make the transition period much smoother. Saving taxes is another primary concern at this stage. If a business owner has recently converted the company from C Corp to S Corp filing status, you should wait a minimum of ten years before selling the company.
Five years out is a good place to review because you are a little closer to the finish line here. Cash flow, tax deduction, and tax leverage should all be explored with your planning specialist at this time. Changes regarding cash flow can allow for a strategy in which cash flow to the owner is a focus rather than company growth.
Finally, even one year out provides planning opportunities. For example, we have implemented strategies which could save the Seller the entire [9% – 13%] tax some states collect upon the sale of a business. If the company will be sold, the owner should identify a business broker or investment banker to actually put the business on the market. This gives enough time for a due diligence review, drafting the sales agreement, and delays related to regulatory issues. No matter what stage you’re at, you need to put some planning tactics in place for your exit plan. Contact us today at 732-521-9455 or email email@example.com to get started with your personalized plan.
Today’s high net worth individuals are deeply sensitive to the risks they face with state income taxes. Since state income taxes can be such a burden for a wealthy person, more individuals are transferring billions of dollars’ worth of assets to trusts in states without tax, like Alaska, Nevada, and Delaware.
While these moves are currently quite legal, they are getting attention from officials in places like New York. New York officials have recognized a $150 million a year loss from avoiding taxes using out of state trusts. Wise wealth planners are clued in to these kinds of strategies, recognizing that many clients are concerned about the negative hit their assets will take when subject to such taxes. Wealth planners report that more clients are asking for assistance in protecting their money wherever possible, and out of state trusts are proving to be a vibrant market with many opportunities.
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Although these transfers are happening at the individual level, they seem to mirror corporation behavior, too. Companies like Google have moved across national borders in order to cut down on the high taxes they are forced to pay if they stay in the U.S. Likewise, some people who want to sell their companies move shares out of home states and into out-of-state trusts to protect gains from state income taxes.
Estate attorneys that are in the know look at every aspect of a client’s portfolio to find the best ways to promote growth and protect from risk. Any client with a substantial portfolio might want to consider this strategy to cut down on the high state taxes that would otherwise be paid. Clients have been successful and satisfied with moving assets across the spectrum from several hundred thousand all the way up to hundreds of millions.
Nevada and Delaware have been engaged in a decades-long battle to get business from wealthy Americans through trusts. Part of the strategy for getting this business is by writing laws that make it simpler to transfer property across several generations and reduce the risk that assets will be attacked by creditors. As a result, Nevada has no state income tax and Delaware doesn’t place a tax on any out-of-state beneficiaries.
One of the most popular strategies is to use a Non-Grantor Trust, known as NING (Nevada Non-Grantor Trust) and DING (Delaware Non-Grantor Trust). Wealthy individuals who live in high-tax states can make the best of friendly policies in other states without the fear of violating any state or federal laws. In fact, a growing number of individuals are moving the assets just far enough outside their control so that they aren’t responsible for state income tax while also protecting them from being hit with a 40 percent gift tax. Most of these trusts are private, so there’s no clear data yet about just how many people are taking advantage of these incredible trust opportunities, but planners and attorneys are both reporting higher numbers of clients getting on board.