Editor’s note: This is the first in an Independent Thinking series on business transition planning.

This article focuses on personal considerations in selling a business; future articles will look at preparing a business (including a family business) for sale, and options for structuring the transaction.
Business owners generally have only one shot at getting transition planning right. But most are so focused on the business itself that they risk securing a legacy and preserving wealth by not focusing enough attention on the transition process.
Almost half of the business owners surveyed by the Exit Planning Institute, or EPI, have not prepared for transition; 79% have no written business plan; and 94% have no written personal plan. That’s despite 99% of respondents agreeing that a transition strategy is “important both for my future and the future of the business.”1 The organization estimates that only 20% to 30% of companies will survive a successful transition.2
For many owners, the clock is ticking. Of the approximately six million privately held companies operating in the United States, about 63% are owned by Baby Boomers, according to the U.S. Census Bureau.3 Although it appears that they are holding on to their businesses longer than previous generations (see Jeff Maurer’s article on retirement here), it’s worth noting that all Boomers will reach the age of 70 or older within the next 15 years. It seems likely that we will soon see a corresponding wave of business transitions, in one form or another.
What form will those transitions take? Failure to plan opens the door to unexpected and even unwanted developments, particularly if a business owner is exposed to divorce, disability, disagreement, death and disaster. Divorce can be crippling to businesses smaller than Amazon when ownership is split. Disability, which can take many forms and is far more likely than an early death, may not directly affect ownership of the business but can most certainly affect profitability if the owner is a key employee. Disagreement is by far the most common exposure and arises anytime two or more owners of a business dispute major decisions. Death and disaster are less common, but can be severe blows to an unprepared business. Good transition planning needs to account for unforeseen pitfalls and to chart a path of the owner’s choosing.
So where to start? Many business owners begin by trying to imagine what will happen to the business – their life’s work – when the focus should be on their own future. Others expect to fully liquidate their ownership and walk away, assuming the buyer is on board with that plan too. This may not always be the best plan and may leave value on the table. Many want to stay involved in the business, but take some money out and diversify their risk exposure. This is possible, but can affect business operation and profitability. There are many different ways to achieve these and other transition goals, but they have to be articulated first.
At the personal level, proper transition planning starts with the owner’s lifestyle needs and goals. It covers income replacement, expense restructuring, funding the next venture if that’s in the cards, and securing the family’s future. Thoughtful advance planning should always take full advantage of available tax and legal structures, and for some business owners that may raise the possibility of changing domicile. It is important to proceed carefully and well in advance of a transaction.
Here is a brief outline of the basic components:

Goal Identification and Development

Conduct a comprehensive family wealth and business assessment to prioritize objectives and develop a goals-based wealth management plan.

Comprehensive Income Tax Planning

  • Minimize income tax liability on the sale of publicly traded or privately held business interests.
  • Factor in domicile, residency and trust situs considerations.
  • Incorporate income tax planning considerations while developing an overall asset diversification and reinvestment plan.

Estate and Wealth Transfer Planning

  • Integrate current estate planning “with the corporate succession plan to ensure that all proper documents (e.g., buy-sell provisions, shareholder agreements) are reflective of current goals.
  • Implement tax-efficient wealth transfer strategies to transition assets with potential for growth to future generations.
  • Current gift and estate tax laws make intergenerational transfers more favorable than in the past.
  • Take advantage of lack of marketability and minority interest discounts with closely held private assets.
  • Incorporate charitable trusts and entities to facilitate philanthropic objectives while minimizing overall income and estate taxes.

Philanthropic Advisory

Develop a long-term plan to manage and administer charitable-giving vehicles in support of the family’s philanthropic mission.

Investment Management

  • Review liquidity needs, risk tolerance and asset allocation.
  • Implement investment policy and asset allocation goals for all entities.
  • Manage customized investment portfolios in a tax-efficient manner, utilizing both public and private investments.
  • Consider asset location with respect to investment strategies across entities.
  • Develop post-transaction equity diversification strategies while being mindful of securities laws as they relate to restrictions on selling, hedging and borrowing of restricted stock.
  • Utilize tax-efficient concentrated stock management.

Transitioning out of a business, whether through gift, sale or many other techniques, and the start of the next stage of life is a big undertaking – and the considerations are as unique as the people involved. Anyone thinking about a transaction in the next five to 10 years should consult their Wealth & Fiduciary Advisor and other trusted professionals.
Daniel Stolfa is a Managing Director and Wealth & Fiduciary Advisor at Evercore Wealth Management. He can be contacted at

1 Exit Planning Institute, A Local Market Study: The State of Owner Readiness, Twin Cities Metro Area 2017.
3 Colby, Sandra L. and Jennifer M. Ortman. The Baby Boom Cohort in the United States: 2012 to 2060. Current Population Reports, P25-1141. U.S. Census Bureau, Washington, DC. 2014

Evercore Wealth Management, LLC ("EWM") is an investment adviser registered with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940. EWM prepared this material for informational purposes only and should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. It is not our intention to state or imply in any manner that past results are an indication of future performance. Future results cannot be guaranteed and a loss of principal may occur. This material does not constitute financial, investment, accounting, tax or legal advice. It does not constitute an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Specific needs of a client must be reviewed and assessed before determining the proper investment objective and asset allocation which may be adjusted to market circumstances. EWM may make investment decisions for its clients that are different from or inconsistent with the analysis in this report. EWM clients may invest in categories of securities or other instruments not covered in this report. Descriptions provided in this material are not substitutes for disclosure in offering documents for particular investment products. Any specific holdings discussed do not represent all of the securities purchased, sold or recommended by EWM, and the reader should not assume that investments in the companies identified and discussed were or will be profitable. Upon request, we will furnish a list of all securities recommended to clients during the past year. Performance results for individual accounts may vary due to the timing of investments, additions/withdrawals, length of relationship, and size of positions, among other reasons. Prospective investors should perform their own investigation and evaluation of investment options, should ask EWM for additional information if needed, and should consult their own attorney and other advisors. Indices are unmanaged and do not reflect fees or transaction expenses. You cannot invest directly in an index. References to benchmarks or indices are provided for information only. The securities discussed herein were holdings during the quarter. They will not always be the highest performing securities in the portfolio, but rather will have some characteristic of significance relevant to the article (e.g., reported news or event, a new contract, acquisition/divestiture, financing/refinancing, revenue or earnings, changes to management, change in relative valuation, plant strike, product recall, court ruling). EWM obtained this information from multiple sources believed to be reliable as of the date of publication; EWM, however, makes no representations as to the accuracy or completeness of such third party information. Unless otherwise noted, any recommendations, opinions and analysis herein reflect our judgment at the date of this report and are subject to change. EWM has no obligation to update, modify or amend this information or to otherwise notify a reader thereof in the event that any such information becomes outdated, inaccurate, or incomplete. EWM’s Privacy Policy is available upon request. EWM is compensated for the investment advisory services it provides, generally based on a percentage of assets under management. In addition to the investment management fees charged, clients may be responsible for additional expenses, such as brokerage fees, custody fees, and fees and expenses charged by third-party mutual funds, pooled investment vehicles, and third-party managers that may be recommended to clients. A complete description of EWM’s advisory fees is available in Part 2A of EWM’s Form ADV. Trust services are provided by Evercore Trust Company, N.A., a national trust bank regulated by the Office of the Comptroller of the Currency and/or Evercore Trust Company of Delaware, a limited purpose trust company regulated by the Delaware State Bank Commissioner, both affiliates of EWM. Custody services are provided by Evercore Trust Company, N.A. The use of any word or phrase contained herein that could be considered superlative is not intended to imply that EWM is the only firm capable of providing adequate advisory services. This material does not purport to be a complete description of our investment services. This document is prepared for the use of EWM clients and prospective clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of EWM. Any unauthorized use or disclosure is prohibited. The Chartered Financial Analyst and CFA trademarks are the property of CFA Institute. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S.

IRS Circular 230 Disclosure:

Pursuant to IRS Regulations, we inform you that any U.S. Federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for (i) the purpose of avoiding IRS imposed penalties or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. This information is provided for information purposes only and does not constitute financial, investment, tax or legal advice.

©2016 Evercore Wealth Management LLC. All rights reserved.