1. Panel:
Carole Azran-Dickstein, Partner, Kolodny & Anteau
Irwin Nachimson, Partner, Nigro Karlin Segal & Feldstein, LLP
Steven J. Wolt, Parq Advisors LLC
James Baer, Managing Partner, Baer & Troff, LLP
Laura A. Zwicker, Partner, Greenberg Glusker Fields Claman & Machtinger LLP
Moderator: Alexander B. Kasdan, Managing Director, DelMorgan & Co.
Event Organized by Anna Spektor, Founder and President, Expert Presence
FAMILY OWNED BUSINESS EXIT STRATEGY
April 25, 2013
2. 1
Carole Azran-Dickstein is a partner at Kolodny & Anteau, a leading Beverly Hills
law firm specializing in sophisticated and complex marital dissolution issues, with
extensive expertise in issues relating to paternity, palimony, marital and domestic torts,
child abuse and child abduction.
Since 1986, Carole's practice has been focused exclusively on Family Law with an
emphasis on complex business and unique asset valuation, high income support issues, as
well as issues regarding child custody and related litigation. Carole is also licensed to
practice law in New Jersey where she practiced family law exclusively for three years.
Carole holds a BA in Psychology/Teaching Credential from the University California at
Los Angeles and a JD from Loyola Law School Los Angeles. She is admitted to the
California and New Jersey State Bars, as well as to the New Jersey Supreme Court.
Carole also served as a Judicial Extern in the Family Law and Motion Department of the
Los Angeles Superior Court.
Carole's reported cases include In re Marriage of Dick and In re Marriage of Benjamin.
Carole is a member of :
• The State Bar of California/Family Law Section
• Los Angeles County Bar Association/Family Law Section
• Beverly Hills Bar Association/Family Law Section
• New Jersey State Bar Association
9100 Wilshire Boulevard
9th Floor West Tower
Beverly Hills, CA 90212
Phone: 310-271-5533
azran-dickstein@
kolodny-anteau.com
www.kolodny-anteau.com
3. 2
Irwin Nachimson is a partner of Nigro Karlin Segal & Feldstein, LLP and has been with the firm
for approximately 20 years. Irwin has worked on family law, fraud, investigative and litigation
support assignments. His assignments have included calculating cash flow available for support,
dividing community and separate assets, tracing assets and valuing companies. Irwin has also worked
on various assignments with asset based lenders in troubled debt scenarios and been involved with
numerous assignments in Chapter 11 cases. Irwin s assignments have included monitoring
companies, analyzing cash flow forecasts, tracing sources and uses of funds and investigating
fraudulent transactions. Irwin has worked in a variety of industries including the Petroleum, Real
Estate, Non-Profit, Computer, Entertainment, Distribution, Manufacturing, Agriculture, and Food
industries.
Irwin has worked on projects for financial institutions including Bank of America, Wells Fargo,
Comerica, Union Bank of California, Bank of the West and Silicon Valley Bank.
Irwin also specializes in merchandising and profit participation audits on behalf of actors, directors
and producers in the entertainment industry as well as other high net worth individuals. As part of
these audits he as visited and done extensive work at various major studios.
Irwin is a graduate of The University of California Los Angeles (UCLA) and earned his MBA from
The University of Southern California (USC). Irwin is a Certified Public Accountant and a member of
the American Institute of Certified Public Accountants, The California Society of Certified Public
Accountants and The Association of Insolvency and Restructuring Advisors. Irwin is certified in
Financial Forensics by the American Institute of Certified Public Accountants (AICPA). Prior to his
work at Nigro Karlin Segal & Feldstein, LLP, Irwin worked with Arthur Andersen.
Irwin is married to his wife of 16 years, Sharona, and has four children. Irwin is a board member of
National Conference of Synagogue Youth. He is also on the Board and a member of the audit
committee of the Union of Orthodox Jewish Congregations of America.
10960 Wilshire Blvd.
Suite 500
Los Angeles CA 90024
(310) 229-5161
www.nksf.com
inachimson@nksf.com
4. 3
Jim Baer is a Principal and Founding Partner of Baer and Troff, LLP. His legal
practice experience includes serving as outside general counsel and business advisor to
numerous companies and individuals, including as strategic advisor for managing and
settling of complex business litigation. His legal practice also includes venture capital
financings for both venture capital firms and portfolio companies, and advising
business entities, boards of directors and individuals on general corporate matters, loan
transactions, mergers and acquisitions, restructuring transactions and corporate
securities issues.
A member of the American Bar Association and the Los Angeles County Bar
Association, Jim is also a past member of the Corporations Committee for the Business
Law Section of the State Bar of California and is a current member of the Los Angeles
County Bar Executive Committee.
Jim also has expertise as a mediator in a wide variety of matters. He is currently
President of CMBG Advisors, Inc., a firm specializing in business restructuring and
Assignments for the Benefit of Creditors (ABCs).
Jim was head of the Corporate Department in the Los Angeles office of Katten,
Muchin & Zavis, a Chicago-based firm. Previous to that, he practiced with Gibson,
Dunn & Crutcher, LLP, a Los Angeles-based firm.
Jim received his Juris Doctorate law degree from Loyola Law School in Los Angeles
in 1983. He was admitted to the State Bar of California in 1983.
11840 Dorothy Street
Suite 301
Los Angeles CA 90049
1.310.802.4200 phone
1.310.471.6971 fax
www.btllp.com
jim@btllp.com
5. 4
Steven J. Wolt, a veteran in the life insurance industry, with over 17 years
of experience, has worked closely with owners of privately held businesses,
executives of publicly traded companies and affluent families on their estate
planning, life and disability insurance needs.
Steven specializes in designing and implementing cost-effective strategies
to mitigate risk, maximize flexibility and reduce taxes for his clients. His
knowledge of estate planning, executive benefits and planned charitable
giving make him a resource to Accountants and Lawyers seeking to
implement life insurance strategies for their clients in the affluent
marketplace.
Steven began his career in New York City and quickly became one of
MetLife's top producers. He has amassed numerous awards over his 15+
year career, including the Top of the Table with the Million Dollar Round
Table as well as the prestigious Chairman’s Council from Met Life.
Steven is an active member of the board of directors for both the Los
Angeles World Affairs Council and Catholic Charities, and is an active
member of St. Monica's Church in Santa Monica.
Steven earned his Bachelor’s degree from Fordham University in New York
and lives in Santa Monica, CA.
9595 Wilshire Boulevard
Suite 510
Beverly Hills, California 90212
(424) 253-7400
www.parqadvisors.com
swolt@parqadvisors.com
6. 5
Laura A. Zwicker is a Partner at Greenberg Glusker Fields
Claman & Machtinger LLP and a Chair of the Firm’s
Private Client Services Group. Laura’s practice focuses
primarily on counseling high net worth individuals and their
families in connection with domestic and international estate and
tax planning issues and business succession planning; advising
financial institutions with regard to fiduciary and custodial
issues; forming, advising and dissolving non-profit
organizations; and probate and post-death trust administration.
Laura is a member, Executive and Planning Committes, 2013
USC Gould School of Law Tax Institute, a member, STEP
(Society of Trust and Estate Practitioners), and an advisoro to
Marat Daukayev Ballet Theatre.
Laura holds a JD degree, magna cum laude, from Indiana
University School of Law, Bloomington, IN, Order of the Coif,
and a BA degree, cum laude, from Washington University, St.
Louis, MO.
1900 Avenue of the Stars
21st Floor
Los Angeles, CA 90067
(310) 785-6819
www.greenbergglusker.com
LZwicker@greenbergglusker.com
7. 6
Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has more
than twenty years of investment banking, real estate, corporate law and corporate
strategy experience. Alex has executed over 100 domestic and cross-border
transactions totaling more than $10 billion in overall volume in a variety of industries.
Prior to joining DelMorgan, Alex founded and ran Convergence Capital Partners, LLC,
a boutique investment banking advisory firm and was an investment banker at
Barrington Associates in Los Angeles, where he headed the restructuring group, Peter
J. Solomon Company, Credit Suisse First Boston and Merrill Lynch.
Alex practiced law with O’Melveny & Myers LLP (formerly O’Sullivan Graev &
Karabell LLP) and Paul, Hastings, Janofsky & Walker LLP (formerly Battle Fowler
LLP), where he specialized in mergers and acquisitions, private equity and corporate
finance transactions. In addition, Alex served as Corporate Counsel in charge of
business development at Schlumberger Ltd., a global oilfield and information services
company.
Alex graduated magna cum laude from Middlebury College with a B.A. degree in
Economics and Italian and was elected to Phi Beta Kappa during his junior year. In
addition, he holds a J.D. degree from Columbia University Law School and has studied
at the University of Florence in Italy. Alex is admitted to the Bar in the State of New
York.
Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firm
established in 2003 by Mr. James L. Gunderson, former Secretary and General Counsel
of Schlumberger Limited, to assist boards, management and owners with corporate
governance, compliance, structuring and strategic transactions.
100 Wilshire Blvd.
Suite 750
Santa Monica, CA 90401
(310) 980-1718
www.delmorganco.com
ak@delmorganco.com
8. 7
Anna Spektor, the Founder and President of Expert Presence,
specializes in digital and event marketing, public relations and
brand communications programs for professional services firms. As
a business development consultant, Anna helps clients develop and
implement comprehensive strategies designed to generate new and
solidify existing referral relationship, elevate profile, and build
brand awareness. Anna is also the founder of Expert Forum and
Expert Webcast, affiliate companies focused on providing the
professional community with quality educational content,
continuing professional education and targeted networking
opportunities.
1999 Avenue of the Stars
Suite 1100
Los Angeles, CA 90067
(310) 995-6579
www.expertpresence.com
anna@expertpresence.com
9. 8
Fiduciary Duties and Obligations of Spouses in
a Family Owned Business
Presented by:
Carole Azran-Dickstein, Kolodny & Anteau
9100 Wilshire Boulevard, 9th Floor West Tower
Beverly Hills, CA 90212
azran-dickstein@kolodny-anteau.com
10. 9
STANDARD OF CARE BETWEEN SPOUSES
What is the standard of care between
Husband and Wife?
11. 10
STANDARD OF CARE BETWEEN SPOUSES
Until the mid-1970s, the "good faith" standards were imposed upon
married persons.
These standards have since evolved into the higher “confidential duty” and
“fiduciary duty” standards.
On January 1, 1994 Family Code section 721 became operative which
significantly changed the duties between spouses.
12. 11
DUTY OF HIGHEST GOOD FAITH BETWEEN SPOUSES
Family Code 721(b):
This section imposes a fiduciary duty of the highest good faith and fair
dealing on each spouse, such that neither shall take any unfair advantage of
the other.
The fiduciary relationship between spouses is subject to the same rights
and duties of non-marital business partners, as provided in the
Corporations Code.
13. 12
So how would Husband’s
fiduciary duties come into play
in the “sale of business scenario?
14. 13
In general, either spouse has the right to manage and control the community
property subject to an exception regarding a business.
A spouse who is managing a business which is all or mostly all community
personal property has:
1. Primary management and control of that business; and
2. Can act alone so long as they provide give prior written notice of any sale,
lease, exchange, encumbrance or other disposition of the property used in
the operation of the business.
[FAMILY CODE SECTION 1100(D)]
RIGHT TO MANAGE COMMUNITY PROPERTY
15. 14
DUTY OF FULLAND COMPLETE DISCLOSURE
EXISTS BETWEEN SPOUSES
Pending the division of community assets and debts, Husband would also have to
disclose :
- all material facts and information regarding the existence,
characterization, and valuation of all assets (and debts) in which the community has
or may have an interest; and
- to provide equal access to all information, records, and books that
pertain to the value and character of those assets and debts, upon request.
[FAMILY CODE SECTION 1100(E)]
16. 15
FAILURE TO MEET FIDUCIARY DUTIES
So for those of us who work with clients as their financial
advisors, business lawyers or business managers, what
happens if the divorcing managing spouse does not meet
his fiduciary duties?
17. 16
BREACH OF FIDUCIARY DUTY
Husband may be subject to a
Breach of Fiduciary Duty Motion
filed by Wife.
18. 17
In the landmark Breach of Fiduciary Duty Case, Marriage of Feldman, Husband
was a very successful real estate developer in San Diego, who tried to hide some
of his assets from wife during their divorce proceedings.
For example, Wife’s attorneys asked Husband’s attorney if Husband had
acquired any new properties. Husband’s attorney responded that Husband was
leasing a residence.
Wife later learned that Husband had formed a new business entity after
separation and bought a $6,000,000 residence in the name of the new business
entity which leased the home to Husband.
Husband also failed to disclose a 401k Plan and an Israeli Bond.
Hypothetical - GOOD LAWYERING or
SANCTIONABLE GAME PLAYING?
19. 18
Wife filed an application with the Court seeking:
1. Monetary sanctions for failing to make financial disclosures; and
2. Payment of her attorney’s fees which is mandatory under the statute.
The Appellate Court affirmed the trial Court's granting of W’s Motion awarding her
$250,000 in sanctions for breach of fiduciary duty and $140,000 in attorney's fees.
Hypothetical – GOOD LAWYERING or
SANCTIONABLE GAME PLAYING?
20. 19
If one spouse commits fraud against the other, the Court has discretion
to award as a type of punitive damage, 100% of any asset undisclosed
or transferred in breach of the fiduciary duty.
If no fraud found, the undisclosed asset is equally divided between the
parties.
[FAMILY CODE SECTION 1101]
IF FRAUD – PUNITIVE DAMAGES SHALL BE AWARDED:
21. 20
Fiduciary Duties implemented to ensure California’s public policy:
1. To preserve, and protect community assets and liabilities that exist at the date of
separation to avoid dissipation of the community estate before distribution;
2. To ensure fair and sufficient child and spousal support awards; and
3. To achieve a division of community and quasi-community assets and liabilities
on the dissolution of marriage.
[FAMILY CODE SECTION 2100]
PUBLIC POLICY FAVORS PROTECTING THE
COMMUNITY ASSETS
22. 21
ADDITIONAL FIDUCIARY DUTIES
No Unilateral Transfers of Assets During Marriage:
1. Noncompliance gives rise to a claim for breach of fiduciary duty, as well as a
"set-aside" remedy on behalf of the aggrieved spouse.
2. Automatic Temporary Restraining Orders [ATROs], become effective
immediately when an action is initiated. The ATROs prohibit each spouse
from:
Transferring, encumbering, hypothecating, concealing, or in any way disposing
of any property, real or personal, whether community, quasi-community, or
separate, without the written consent of the other party or an order of the court,
except in the usual course of business or for the necessities of life.
23. 22
Hypothetical - Sale of Business
Married couple, H running the business, and in the process of negotiating a
sale to a strategic buyer, in the same industry. W files for divorce and serves
H a week before the scheduled closing date.
How does the filing of divorce by W change the negotiations?
24. 23
Hypothetical - Forced Sale of Business
Married couple owns a business held as community property and they have a
third party owner who owns 50% and this third party wants to buy out the
50% held by the married couple, who coincidentally are in the middle of a
divorce.
Can the third party partner force a sale under the terms of the
Shareholders Agreement?
25. 24
Hypothetical - Corporate Woes
Married couple going through a divorce at a time when the company
gets a call from City National Bank that the loan on the business has
been called and the company is forced to liquidate.
Did both parties sign the loan documents?
What if only H signed?
What if W signed but she was not represented by independent
counsel?
26. 25
Hypotheticals - Divorce and Business Valuations
Divorcing H and W do not get along, are both integral to running the
business, do not have significant assets outside of the business and
cannot agree on the valuation.
Business is sold in divorce, H continues on with a consulting agreement
and an earn-out. What is the value to W in divorce?
27. 26
Closing
I hope this brief discussion of the fiduciary duties and obligations
between spouses has provided you with:
1. Some information so that you are able to spot fiduciary duty issues;
2. Some tools to enable you to best represent your clients so that they
do not breach any of these duties; and
3. Some resources so that you can consult with other professionals
should your clients ever confront fiduciary duty issues.
29. 28
Income Issues and Property Issues
There are two categories through which we need to look
at a small business in a Divorce Setting
• How much income is currently being generated by the
small business for the purpose of calculating support and
value.
• What is its value?
30. 29
Income Issues and Property Issues
Income being generated by the company is typically
assigned to the in-spouse for the purposes of
calculating support.
• How do we determine the true income of a company
and what documents are needed?
31. 30
Income Issues and Property Issues
• Basic Documents Needed To Determine True
Income:
– Company Tax Returns
– Company Trial Balances and General Ledgers
– Company Contracts
– Bank Statements
– Account Receivables and Payable Ledgers
IncomeAvailable for Support
32. 31
Income Issues and Property Issues
• Typically we look at Income for the most recent
12 Month Period
– How do We Determine a True Income Number?
1. Add Backs:
Prerequisites – Example:
Auto expenses
Meals and Entertainment
Travel
Charitable Contributions
Divorce Legal Fees
Pensions
Medical and Life Insurance
33. 32
Income Issues and Property Issues
How do We Determine a True Income Number?
(continued)
2. Taxable vs. Non Taxable
3. Depreciation – Non Recurring Expenses
4. Reductions From Income – Non Recurring Income
(i.e., Expiring Contracts)
34. 33
Income
• Income vs. Cash Flow
• Income Generated – Includes Accrued
Receivables vs. Cash Approach (Does Not
Include Accrued Sales)
• Also Applies to Payables
• How much is other spouse retaining within the
Company and not reporting as a distribution
36. 35
Income and Valuation
• Valuation Methods
I. Income Approach
– Takes into account
• Risk
• Appropriate Multiple & Reasonable Compensation
• Historical Earnings
II. Market Approach – Other Comparable
Companies
III. Asset Approach – Assets Only
38. 37
Asset Approach
• How do you buy them out?
Award Other Assets (House)
Notes Payable
Share of the Profits
39. 38
Valuation - Issues Involved
• Value of Small Business
• Dates of Valuation
Date Closest to Trial
Service Business – Date of Separation
Other Stipulated Date
40. 39
The Corporate Law Perspective
Presented by:
James K Baer, Partner
Baer & Troff, LLP
41. 40
Overview
Splitting up a private family-owned business in the context of a divorce
proceeding is similar to dividing up any privately-owned business.
But note…
• The personal issues and dynamics are more likely to be important and to have
high emotional content
• Special limitations and requirements imposed by Family Law including:
• The requirement that any transmutation of property interests be made in
writing by an express declaration that is accepted by the spouse whose
interest is adversely affected
• The imposition of fiduciary duties in transactions between spouses: a
duty of the highest good faith and fair dealing on each spouse and
neither shall take advantage of the other.
42. 41
Unique Considerations
• Both spouses are active in the business and have similar roles and interests.
• Both spouses are active in the business and have different roles and/or
interests (e.g., one spouse is central to the development and growth of the
business and one is in a supporting role).
• One spouse is active in the business, the other is a co-owner only (at least for
the most part).
43. 42
Implementation of the Split-Up
When divorce means splitting up the family business, there are several different
ways to implement the split-up, which may vary depending on economic
objectives of each spouse, willingness of the spouses to cooperate and the extent
of anticipatory planning:
• One spouse buys out the other
• The company is liquidated and the proceeds distributed to the owners
• The company is sold to a third party
• The spouses figure out some middle ground to continue the company by finding
a trusted third party to operate and control the business working together or
giving one spouse substantial control and protecting the rights of the other to
their share of assets and profits.
44. 43
Information Rights
Access to information is essential to protecting a shareholder s investment,
particularly in private family-owned business where there is unlikely to be
another source for that information:
• Minimum rights are available by statute and the available statutory rights are
different depending on the state and the entity.
• Specific rights to information can (should be) included in the applicable certain
organizational documents
• A shareholder seeking to preserve his or her equity interest in a family-owned
business should insist on basic information rights and exercise them regularly.
45. 44
Fiduciary Duty Provisions
• Usually the owners and managers of a privately-owned company are careful
to limit the fiduciary duties of one owner to another.
• The statutory duties (under corporate law) of owners to each other are very
limited.
• The standard legal duties of a director, manager or officer to an owner are:
• Duties of Care: The duty to use good judgment and to use ordinary care
and prudence in the operation of a business.
• Duties of Loyalty: Corporate fiduciaries breach their duty of loyalty
when they divert corporate assets, opportunities or information for their
personal gain; corporate fiduciaries are generally prohibited to put their
personal interests ahead of those of the corporation.
46. 45
Covenants Not to Compete
• California Family Law provides that each spouse shall act with respect to
the other spouse in the management and control of the community property
and liabilities in accordance with the general rules governing fiduciary
relationships. . . .
• Obligation to make full disclosure of all material facts and information
regarding the community assets and liabilities and to provide equal access to
the information records and books upon request.
• In the event of a sale of the business to a third-party or a buy out by one
spouse of the interests of the other spouse in the business, it is likely that the
buyer will request a non-compete from the seller(s).
• Buy-Sell agreements should include an obligation of the seller to agree to a
non-compete as a condition to receiving the purchase price.
• In California, need to be sensitive to the limitations on non-competes.
47. 46
Capital Structure
There are various alternatives for using the capital structure of a company
(before and/or after split-up) to achieve objectives:
• Different Classes of Equity Interests: Can differentiate economic returns,
voting rights, priorities, and liability exposure to third parties.
• Debt Instruments: Can provide one spouse with a priority payment that can
reduce risk to the creditor spouse and limit the ability of the spouse
controlling the company to adversely affect the rights of the creditor spouse.
• Separating Assets and Business: Can separate an asset (e.g., intellectual
property) and give it a protected return (e.g., a royalty).
• Shareholders Agreements: Can provide an alternative way to give one
shareholder specific control over certain governance or operational issues.
48. 47
Involuntary Dissolution
If no resolution with respect to a split-up can be reached, a shareholder holding
not less than 1/3 of the equity interests can file a complaint seeking involuntary
dissolution, if one of the statutory grounds exists.
Statutory grounds include:
• An even number of directors who are equally divided and cannot agree as to
management of the company s affairs.
• Internal dissension of 2 or more factions of shareholders who are deadlocked so
that the company s business cannot be conducted.
Involuntary dissolution can be avoided if 50% or more of the shareholders
purchase for cash the shares of the shareholders seeking dissolution at their fair
value.
50. 49
Assembling the Working Group
• Investment Banker
Pre-engagement diligence – solid financials, reputation, etc.
Desirability of client – our reputation and time are on the line
Selling on the uptick
Identify all appropriate add-backs and adjustments to EBITDA
Recast historical financials
Projections and pro-forma adjustments
Knowledge of marketplace and process
Due diligence issues
Management issues
Investment banking fees – exclusivity, retainer, success fees
51. 50
Valuation of the Business
Reason for Valuation
Fair Market Value
Fair Value
Other
Methodology
Minority and Marketability Discounts
Personal transactional tax implications
Due diligence issues
52. 51
Issues to Consider
Familiarity with M&A issues
Knowledge of various deal structures
Confidentiality of the sale process
Non-compete agreements
Stock sale vs. asset sale
Employment and/or consulting agreements
Board and minority shareholder/passive investor issues
Legal fees
53. 52
Company
Preparation
Marketing the
Company
Receive
Proposals
Due Diligence
and LOI
Negotiations and
Closing
5-7 weeks 6-12 weeks 3-4 weeks 4-6 weeks 4-8 weeks
• Information
gathering
• Prepare
Company
Summary
• Prepare
Information
Memorandum
(IM)
• Finalize list of
targets
• Contact
targets
• Execute CAs
• Distribute IMs
• Organize
Virtual Data
Room
• Address any
other issues
• Receive written
indications of
interest
• Select short
list
• Management
Presentations
• Initial due
diligence
• Solicit final bids
(LOIs)
• Distribute draft
agreements
• Receive final
offers
• Evaluate LOIs
• Negotiate with final
bidders
• Coordinate working
group (counsel,
accountants, other
advisors)
• Final due diligence
• Closing
Total Time =
22–37 Weeks
Illustrative Sale Process – Steps and Timeline
54. 53
The main responsibility of business owners
and management is to continue running
the business – need to meet all
projections and forecasts
55. Keeping the Family in the Family
Business: An Estate Planner s
Perspective On Family Business
Succession Planning
1900 Avenue of the Stars, 21st Floor, Los Angeles, California 90067
PRESENTED BY:
LAURA A. ZWICKER
Attorney at Law
D: 310.785.6819
lzwicker@greenbergglusker.com
56. What Happens Now?
Valuation
Intra-family buy/sell or
shareholders agreements
are not likely to be binding
on IRS
Sale of shares may have
estate tax implications
Non-controlling/fractional
interests
Unbundling of integrated
business assets
57. What Happens Now?
Allocation of Control/Ownership
All to active family members
Equal equity interests, but all voting interests to active
family members
Equal equity and voting
interests, but active family
members as business
trustee for passive
family members
58. Allocation of Ownership/Control
All to active family members
Fund equalization with non-business assets
Fund equalization with insurance
Perception of equity of allocation within family
59. Allocation of Ownership/Control
Equal division of business interests
Option to purchase
Determination of purchase price
Funding of purchase price
Effect of purchase on estate tax value
Effect of purchase on entity holding California real property
Allocate non-voting interests to passive family members
Legal duties of voting shareholders, officers and directors
Differing financial and emotional interests
Business Trustee for passive family members
Fiduciary duties of trustee
60. What Happens Now?
Liquidity
Equalizing allocation to
non-participating family
members
Fund buy-out
non-participating family
members
Fund estate tax payments
61. Generating Liquidity
Life Insurance
Policy owned by business
Traditional funding
Split-Dollar funding
Effect on estate tax value
Policy owned by trust
Funding premiums
Allocation of proceeds not used
Cross-ownership of policy
62. Generating Liquidity
Outside Investors
Sale of entire company
Sale of non-controlling stake
Integration into management
Acquire expertise along
with liquidity
Conventional Borrowing
6166 Election
63. Keeping it in the Family
Cultural sensitivities
Are there family members with appropriate
expertise
Protecting family ownership on divorce/gifting
Education and common vision for both active and
passive family members
Exit plan for passive family members
Dispute resolution system
Employment policy for next generation
64. Gift And Estate Tax
Current Credit/Exemption Levels
Year Gift/Estate Tax
Credit
Gift/Estate Tax
Rate
GSTT
Exemption
GSTT Rate
2012 $5.12 Million 35% $5.12 Million 35%
2013 $5.25 Million 40% $5.25 Million 40%
2018* $3.5 Million 45% $3.5 Million 45%
Annual Exclusion of $14,000/donor/donee/year
*Under the President s 2014 Budget Proposal, credit and tax rates would return to 2009 levels in 2018