Create Profits, Not Drama, In The Family Business
A family business—where the logic of business collides with the emotions of owners and heirs—requires careful planning to avoid family drama.
That planning becomes even more crucial when buying or selling a business, adding tax ramifications to issues of family fairness. So where can you find solid information and advice?
Your Webster Private Banker can provide the type of wealth planning that is needed.
“Bring us into the conversation, and it’s striking how much value the bank can add,” says Caryn Cosentini, senior vice president at Webster Private Bank. She cites an example of an owner selling a business and receiving millions. But before they began discussing investment planning, they spent a long time talking about what retirement means. Was he really content to do nothing?
Another business owner received a windfall and found himself with a lot of cash. “Most banks would be talking to him about managing the cash,” Cosentini says. “My conversation is ‘You need a life plan. Who will be your successor? How do you want to live? Do you want to grow these proceeds or just live on them? Do you have charitable interests, and perhaps would like to donate business interests to your favorite charity? Are there family members who need care or maybe support to start their own businesses?’ Life is complicated, and all of that becomes the background against which you start to do investment management.”
Founders often dream of the next generation taking over, but that doesn’t usually happen. Cosentini lists six transitions business owners need to consider:
The founder. Does he or she still want to retain control? What will they do next?
The family. Will they run the business? Is there a need to reduce transfer taxes?
The business itself. Is it a beloved community institution? A significant employer?
The management team. What happens to them?
The ownership structure. How will the ownership interest be transferred? Will stock or assets be transferred?
The estate. Who pays the estate taxes and is there sufficient liquidity to pay this tax without liquidating business interests?
Cosentini cites a 2007 survey that said 40 percent of business owners expect to retire in 10 years “and most don’t have successors in place.”
One business owner had already arranged to sell his business, but hadn’t taken steps to protect the proceeds from capital gains tax. Although he approached Webster Private Bank in the late stages, they were able to advise him to gift proceeds to his children who were in a lower tax bracket. “We probably saved him around $40,000 in taxes, and that’s without preplanning,” Cosentini says.
Your personal banker can also lend a more objective look at issues such as when one sibling is involved and wants to invest more in the business, but another is not and just wants their part of the business converted to cash.
“A bank can add that overlay of really doing the numbers,” Cosentini says.
Entrepreneurs are busy, but taking the time to call your banker saves time—and heartache—and likely even money.
To learn more about what your Webster Private Banker can do for you, contact Caryn Cosentini at 914.298.2562 or firstname.lastname@example.org; or visit us at www.websteronline.com. Our office is located at 1 North Broadway, White Plains, NY.
Investment, trust, credit and banking services offered through Webster Financial Advisors, a division of Webster Bank, N.A. Webster Private Bank is a trade name of Webster Financial Advisors. Investment products offered by Webster Financial Advisors are not FDIC or government insured; are not guaranteed by Webster Bank; may involve investment risks, including loss of principal amount invested; and are not deposits or other obligations of Webster Bank.
Webster Financial Advisors is not in the business of providing tax or legal advice. Consult with your independent attorney, tax consultant or other professional advisor for final recommendations and before changing or implementing any financial, tax or estate planning advice.
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