Today, we will discuss a topic that does not directly deal with succession, your estate or death taxes.  This is relevant in order to determine the financial burden that may be brought onto the business at the time of your passing.  Do you ever quantify the “cost” to your children of your estate tax?  This exercise can yield surprising results which can often lead to action as well as developing strategies to deal with this.

http://successinsuccession.wordpress.com/2011/04/12/valuing-the-business-revisit-the-stats/

I have previously alluded to estate freezes.  This is a strategy appropriate when the owner(s) of the business feel that he/she has earned enough and has suffiicent personal wealth to take care of the needs into old age.  The future growth of the business can be for the owners’ designated successors.  An estate freeze in this situation works strategically well.

I am working with a family right now.  They do not want to face the issues raised in the first paragraph and do not want to even quantify the potential estate tax.   Once quantified, strategies such as 1. estate freeze, 2. fund a sinking fund, 3. purchase life insurance.  Any as a standalone solution or a combination of the 3 would work.

Here is the calculation.

1. determine the fair market value of the business goodwill, retained earnings and its assets, such as real estate

2.calculate the tax cost of these assets

3. subtract the total of (1) from (2)

4. multiply the total in (3) by about 25% (if you are in Canada), up to 40% if you are in the US – those dreaded US estate taxes).

This calculation will approximate the “estate tax” that would be payable on your passing, typically when the assets pass between generations.

Try this…what do you have to lose?

Learn, think, apply.