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Small Business Succession Planning – 2009 Provides a Prime Opportunity

Posted by Jamie Downey  May 14, 2009 09:45 AM

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Ninety percent of the 21 million US businesses are family owned. Yet only thirty percent of family run companies today succeed into the second generation, and only 15 percent survive into the third (Source The reason for this significant failure is obvious; these businesses lack an orderly succession plan.

The current malaise of the US economy is of top concern for small business owners. However, this creates an excellent opportunity to execute your family succession plans and to reduce your taxable estate. There are two main reasons why this is an optimal time to execute your succession plan:

1.) Valuations are low – No business owner appreciates the idea that the value of their business has declined over the last few years. However, this provides owners more flexibility in executing their succession plan. The reduction in value makes it much more tax efficient to move these assets out of one’s estate and into the hands of the next generation. Just a few years ago the same transfer may have cost the business owner a significant amount of taxes. We should remember the old adage, “when life gives you lemons, make lemonade.”

2.) Tax rates are low – Long term capital gains tax rates are currently capped at 15 percent. This rate is quite low from a historical perspective. This rate is set to expire at the end of 2010, at which time the maximum rate will increase to 20 percent. The President has stated that he does not intend to extend the reduced rate, so higher rates will be here in the near future.

To take advantage of this opportunity, some of the following strategies can be considered:

Gifting stock to the next generation - A simple way of executing your succession plan is to make annual gifts of $13,000 or by using the one million dollar lifetime exemption. Married couples can use a total of two million dollars in gift exemptions. The transaction would be executed as follows: a business owner obtains a valuation from a qualified appraiser for the business. Discounts for lack of marketability and minority interests can be used to reduce the already low valuations. Transfers are made based on these low valuations and the owner’s estate is reduced and succession goals are achieved.

Stock sale – Another way to execute your succession is to sell the business to your successor(s). The business owenr provides all, some or none of the financing for the transaction. Again, with valuations and long term capital gains rates low, the tax implications may be minimal.

Business owners are obviously distracted by economic issues, but please do not miss out on this opportunity to align your business for the future and to reduce your taxable estate.

This blog is not written or edited by or the Boston Globe.
The author is solely responsible for the content.

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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of, a credit card and gift card marketplace, and, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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