Our client took over his family’s manufacturing business in 2001. Several days before Christmas 2005, his phone rang in the middle of the night—his company was on fire. He arrived at the scene at the same time as the firefighters, and he watched the family business go up in smoke. He vowed if he ever got his company running again, that he would never have all of his eggs in one basket.

A year later, the company was back in production, and our client was confident it was going to survive. He acted on the promise he had made to himself and called us to discuss how to begin planning for a business transition.

In our initial meeting, we discussed his goals with regard to when he would transition his company, the types of investors who were likely to be interested, the deal proceeds he hoped to receive, and, most importantly, the process of preparing the business for a transition. At the time, the owner wanted to sell his company in five years ...

Estate taxes are complicated, but generally, once the value of an estate exceeds $5 million, an individual can count on paying an approximate 50% federal and state estate tax rate (no wonder some people call them death taxes). One of the key benefits of strategic transition planning is a reduction in the total taxes that must be paid to transfer the proceeds from a sale of a business to the next generation.

Estate taxes are calculated based on the fair market value of the assets in the estate at the time of death. Similarly, gift taxes are based on the fair market value of the gifted assets at the time of the gift. Appraisers recognize three levels of value based on the degree of control and marketability associated with the interest. The fair market value of the business as a whole when sold outright is calculated at the controlling interest level of value. The fair market value on a controlling interest basis includes the benefit of the ability to control the operating, financial, and strategic ...