When a company owner decides to pass the business on, he needs to assemble a team of professionals to guide him through the process.
The team should be composed of an attorney, an accountant or valuation expert, business advisers and insurance salespeople. Some trade groups even recommend that a family counselor also be on hand because of the multitude of emotional issues involved, according to estate planning experts contacted by SN.
Integral to the entire process is cooperation between the company owner, his successor and their team.
Carey Berger, an attorney in Lawrence, Kan., who is working with FMI's new Family Supermarkets Succession Resources Program, said, "The retailer has to be there to tell us what the real concerns are. The whole point of this is to achieve the objectives of the client."
· The first stage of the process requires retailers to identify their assets and desires. In other words, they should determine where they are today and where they want to be tomorrow.
Because this is the most difficult phase for the retailer, Berger suggested a family counselor or psychologist might be most useful at this time.
"They're used to focusing on the next mile in the road instead of what's down the road," he said. "This isn't a trip they're used to taking."
· The next step involves the drafting of the estate plan -- drawing up wills, trusts, buy-sell agreements and other financial and legal documents. To do this, retailers should rely heavily upon the advice of their team of experts.
The best way to go about this, according FMI, is for retailers to picture where they would like to see their businesses five years after their deaths. If, for example, they would like to see their children at the helm, they should formulate a plan to deliver the business into their children's hands.
On the other hand, if they would like to see the business sold to a larger corporation and the money divided among their children, they should take steps to make that happen.
· The third phase -- the part in which the Internal Revenue Service is paid its dues -- is perhaps the trickiest step of the process.
Realizing that the IRS is entitled to a portion of an individual's assets when the individual dies, Berger advises clients to "purposely create situations where you can legitimately discount the value of your assets."
One option is to make gifts of portions of the business, preferably those that have the greatest appreciation, thus leaving less valuable assets in possession of the owner. After the owner's death, his estate will pay less in estate taxes and probate costs than if it had held more valuable assets.
Indeed, the IRS may be entitled to as much as 55% of a person's assets, said Marc Rogers, vice president and financial consultant with Smith Barney, New York. Even worse, beneficiaries could lose up to 90% of their inheritance after figuring in surtaxes and income, estate and gift taxes.
"If the strategy does not adequately cover these other issues, a family may be forced to sell the business because the rest of the business owners' estate plan failed to satisfy the IRS," he told SN. Rogers is a member of Smith Barney's Grocer Team, which advises supermarket executives about retirement planning, among other things.
· In the final stage of the process, retailers should decide how those expenses will be paid. FMI offers four suggestions to cope with this: Pay with cash; sell the assets; borrow the necessary cash; pay with life insurance.
Berger stressed the importance of following all the steps in the plan. "You simply have to play by the rules and have good advisers," said Berger. "You can't make short-term decisions on these matters."
