Our client, a successful manufacturer of industrial components, had been owned by the same people for over 30 years. As they approached retirement, they wanted to bring in new ownership from the ranks, both family and non-family employees. We designed a flexible succession plan that enabled the employees to buy stock at affordable prices, but also guaranteed a substantial payout to the original owners at retirement, or to pay estate taxes if they died while still at the company. The new employee-shareholders were locked in with employment and noncompetition agreements. All of the shareholders signed buy/sell agreements to insure that the stock remained within the current ownership group. The net result was that the original owners can rest assured that the company which they built will buy them out at agreed prices and continue beyond them. And the new owners are excited and enthusiastic about the business opportunity they now have.
A New York Stock Exchange company made an attractive offer to acquire our client, which had operated a family-held company in the food industry for three generations. After a lot of thought, the shareholders decided it was time to sell. Our objective was to maximize the after-tax gain to our client’s shareholders, while maintaining liquidity. Working with the client’s CEO, we negotiated merger terms, which permitted the client’s shareholders to receive a tax-free exchange of the NYSE company’s stock as payment for their shares. In addition, we recommended that the shareholders receive the right to register their new stock with the Securities and Exchange Commission – at the NYSE company’s cost – to permit them to sell it. Finally, we negotiated employment contracts for the client’s management personnel, securing the additional compensation offered. The deal closed on time and within budget.
We represented an industrial company, which simply outgrew its plant. We negotiated a purchase of vacant land directly from the owner at a favorable price. We prepared construction contracts for the new plant and helped secure low-interest financing through tax-exempt industrial revenue bonds issued by the village. Our client wanted to reward his key employees, not through issuance of corporate stock, but by allowing the key employees to buy an interest in the new plant. We organized a limited partnership to do that, and put a buy/sell arrangement in the limited partnership agreement to keep the ownership interests in the original group. The limited partnership then leased the plant to the industrial company. The plan worked, as all of the key employees have stayed with the company. Afterwards, the plant expanded (twice) and has been refinanced, and a second group of key employees has been added.
Following a merger, our client received a large block of restricted stock in a single public company. The client wanted to sell much of the stock and diversify his portfolio, but didn’t want to pay the large capital gains tax that would be assessed. We asked the client about his long term objectives and discovered that he wanted to provide a steady source of income for himself and his wife, and also to benefit a charity. We therefore recommended that a large block of the stock be placed in a charitable remainder trust with a corporate trustee. The trustee would sell the stock and diversify the portfolio, paying an annuity to the client and his wife for life. The stock was sold without payment of the large capital gains tax. The couple has a steady income stream for the future, and an immediate income tax deduction that the client used to offset gains from sales of stock outside of the trust.
A couple came to us concerned about estate taxes, asset protection and succession planning. They wanted to provide for their children, but they wanted their children’s inheritances to be protected from creditors. We first considered the couple’s needs without thinking of the tax ramifications, as we wanted to a plan that met their wishes and was not driven by taxes. We then considered how to achieve the couple’s goals in a way that was both tax-efficient and flexible, to allow for additional planning as conditions changed. Ultimately, we created a limited partnership in which the clients, their children, trusts, and a limited liability company were partners. The couple and their children each contributed assets to the partnership, and the couple then sold and gifted partnership interests to the trusts, which were for the children and grandchildren. The LLC managed the partnership, and was run by the children, who are now managing the family assets and diversifying the family’s business interests, including real estate developments and franchises. The couple also created a life insurance trust for the children and designated a family charitable foundation as the beneficiary of their large retirement plans, thus avoiding both estate and income tax on these assets at death.