Client Profile:

A married couple in their 50s, looking to sell their successful business consulting firm. They have three children, ages 10-22, and own several significant assets, including stocks, insurance policies, vehicles, and real estate.

With a total estate size of $10 million (excluding the business) and a potential sale price of $12 million, they wanted to ensure their wealth was protected, preserved, and passed on to their children in the most tax-efficient manner.

Collaborative Strategy

We worked closely with their existing team of professionals, including tax advisors, estate planners, and financial consultants, to craft a comprehensive exit plan. This team effort ensured that every decision related to the business sale was made with their broader financial goals in mind.

STAGE 1-2: Exit Mindset and Planning

• Preparing to Step Down: We developed a plan for the couple to transition out of the CEO role, ensuring leadership continuity.

• Maximizing Sale Value: By optimizing the business’s financials and operations, we positioned it for a successful $12 million sale.

• Asset Protection: Legal structures were put in place to protect both personal and business assets.

• Risk Reduction: We mitigated potential risks that could arise during the sale or post-sale transition.

• Tax Mitigation: Implemented tax strategies to reduce liabilities.

• Profit Maximization: Optimized operations and financials to ensure the maximum profit from the sale.

STAGE 3: Securing the Sale

• Allocating Sale Proceeds: The sale proceeds were strategically allocated into the right entities, including an LLC and a private foundation, to maximize tax efficiency.

• Finalizing Contracts: We ensured that all legal documents were in place and compliant with the terms of the sale.

• Smooth Transition: A clear transition plan was implemented, allowing the new ownership to take control seamlessly.

• Handover of Responsibilities: The transfer of control was carefully managed to ensure business continuity and client satisfaction.

STAGE 4-5: Post-Sale Wealth Management

• Managing Legal and Tax Paperwork: Post-sale legal and tax obligations were handled efficiently to ensure full compliance.

• Managing Multiple Entities: The couple’s wealth was distributed across multiple entities to optimize protection and efficiency.

• Estate and Tax Planning: We prepared for future changes in estate and tax law to safeguard their wealth.

• Gifting and Donations: The couple utilized strategic gifting and donations to their foundation to reduce taxable income.

• Reinvesting in Foundations: The foundation allowed the family to reinvest sale proceeds into stocks and other assets, with the family taking an active role in managing charitable activities.

Financial Breakdown

• Business Sale: Sold for $12 million (cost basis: $2 million)

• Profit: $10 million

• Capital Gains: 20% = $2 million in taxes

• AGI: $1 million

To minimize tax liabilities, the couple donated 50% of their shares to their private foundation.

• LLC Receives: $5 million from the sale.

• Foundation Receives: $5 million, with a 1.39% tax on the amount = $69,500.

• Capital Gains Tax (their portion): $1 million on the $5 million sale proceeds received by the LLC.

• AGI Deduction: They claimed a 20% deduction on the AGI for the value of the shares donated (cost basis), and they can donate 30% of their personal income to the foundation annually.

• Extended Deductions: They receive five additional years of deductions for any excess over the 20% or 30% limits.

• The Overall Effect: Neutralizing capital gains taxes through charitable deductions over a period of 6 years.

Foundation and Legacy Planning

The foundation not only minimized taxes but also allowed the couple to engage in charitable activities and legacy planning.

• Family on Board: The family manages the investments within the foundation without the need for outside trustees or parties.

• Annual Charitable Donations: 5% of the foundation’s value ($250,000/year from the $5 million fund) goes to charitable causes.

• Wealth Outside the Estate: The funds in the foundation are outside of the estate, protecting them from estate tax, gift tax, inheritance tax, and probate.

Selling the business WITHOUT robust a comprehensive estate & tax plan (uncoordinated strategy)

Many business owners sell their companies without considering the "hidden" layers of taxes and costs. Later down the line, they may create a will and/or in rare situations, a revocable trusts as well, to pass-on their wealth to the three children. Here's a glimpse of the taxes and costs if they decide to deal with the sale and tackle estate planning later down the line.

• Total Estate Size (with sale): $18 million

• Capital Gains Tax: $2 million

• Gift Tax Exemption: $13 million (new 2025 limits), leaving $5 million subject to a 40% estate tax.

• Federal Estate Tax: $2 million

• Probate Costs: 2-8% of estate value ($300,000 - $900,000)

• Inheritance Tax: 3-18% in some states (Up to $1 million, taxed on beneficiaries).

• Probate Timeline: 2-3 years + public proceeding

Conclusion

Through strategic planning, the couple successfully minimized their tax liabilities, protected their wealth, and created a lasting legacy through their foundation. By donating shares, reinvesting funds, and engaging in charitable activities, they reduced their estate size and tax burdens, ensuring that more of their wealth would be preserved and passed on to their children.