Panel:Carole Azran-Dickstein, Partner, Kolodny & AnteauIrwin Nachimson, Partner, Nigro Karlin Segal & Feldstein, LLPSteven J. Wolt, Parq Advisors LLCJames Baer, Managing Partner, Baer & Troff, LLPLaura A. Zwicker, Partner, Greenberg Glusker Fields Claman & Machtinger LLPModerator: Alexander B. Kasdan, Managing Director, DelMorgan & Co.Event Organized by Anna Spektor, Founder and President, Expert PresenceFAMILY OWNED BUSINESS EXIT STRATEGYApril 25, 2013
1Carole Azran-Dickstein is a partner at Kolodny & Anteau, a leading Beverly Hillslaw firm specializing in sophisticated and complex marital dissolution issues, withextensive expertise in issues relating to paternity, palimony, marital and domestic torts,child abuse and child abduction.Since 1986, Caroles practice has been focused exclusively on Family Law with anemphasis on complex business and unique asset valuation, high income support issues, aswell as issues regarding child custody and related litigation. Carole is also licensed topractice 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 atLos Angeles and a JD from Loyola Law School Los Angeles. She is admitted to theCalifornia 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 theLos Angeles Superior Court.Caroles 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 Association9100 Wilshire Boulevard9th Floor West TowerBeverly Hills, CA 90212Phone: firstname.lastname@example.org
2Irwin Nachimson is a partner of Nigro Karlin Segal & Feldstein, LLP and has been with the firmfor approximately 20 years. Irwin has worked on family law, fraud, investigative and litigationsupport assignments. His assignments have included calculating cash flow available for support,dividing community and separate assets, tracing assets and valuing companies. Irwin has also workedon various assignments with asset based lenders in troubled debt scenarios and been involved withnumerous assignments in Chapter 11 cases. Irwin s assignments have included monitoringcompanies, analyzing cash flow forecasts, tracing sources and uses of funds and investigatingfraudulent transactions. Irwin has worked in a variety of industries including the Petroleum, RealEstate, Non-Profit, Computer, Entertainment, Distribution, Manufacturing, Agriculture, and Foodindustries.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, directorsand producers in the entertainment industry as well as other high net worth individuals. As part ofthese 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 fromThe University of Southern California (USC). Irwin is a Certified Public Accountant and a member ofthe American Institute of Certified Public Accountants, The California Society of Certified PublicAccountants and The Association of Insolvency and Restructuring Advisors. Irwin is certified inFinancial Forensics by the American Institute of Certified Public Accountants (AICPA). Prior to hiswork 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 ofNational Conference of Synagogue Youth. He is also on the Board and a member of the auditcommittee of the Union of Orthodox Jewish Congregations of America.10960 Wilshire Blvd.Suite 500Los Angeles CA 90024(310) email@example.com
3Jim Baer is a Principal and Founding Partner of Baer and Troff, LLP. His legalpractice experience includes serving as outside general counsel and business advisor tonumerous companies and individuals, including as strategic advisor for managing andsettling of complex business litigation. His legal practice also includes venture capitalfinancings for both venture capital firms and portfolio companies, and advisingbusiness entities, boards of directors and individuals on general corporate matters, loantransactions, mergers and acquisitions, restructuring transactions and corporatesecurities issues.A member of the American Bar Association and the Los Angeles County BarAssociation, Jim is also a past member of the Corporations Committee for the BusinessLaw Section of the State Bar of California and is a current member of the Los AngelesCounty Bar Executive Committee.Jim also has expertise as a mediator in a wide variety of matters. He is currentlyPresident of CMBG Advisors, Inc., a firm specializing in business restructuring andAssignments 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 Angelesin 1983. He was admitted to the State Bar of California in 1983.11840 Dorothy StreetSuite 301Los Angeles CA 900491.310.802.4200 phone1.310.471.6971 firstname.lastname@example.org
4Steven J. Wolt, a veteran in the life insurance industry, with over 17 yearsof experience, has worked closely with owners of privately held businesses,executives of publicly traded companies and affluent families on their estateplanning, life and disability insurance needs.Steven specializes in designing and implementing cost-effective strategiesto mitigate risk, maximize flexibility and reduce taxes for his clients. Hisknowledge of estate planning, executive benefits and planned charitablegiving make him a resource to Accountants and Lawyers seeking toimplement life insurance strategies for their clients in the affluentmarketplace.Steven began his career in New York City and quickly became one ofMetLifes top producers. He has amassed numerous awards over his 15+year career, including the Top of the Table with the Million Dollar RoundTable as well as the prestigious Chairman’s Council from Met Life.Steven is an active member of the board of directors for both the LosAngeles World Affairs Council and Catholic Charities, and is an activemember of St. Monicas Church in Santa Monica.Steven earned his Bachelor’s degree from Fordham University in New Yorkand lives in Santa Monica, CA.9595 Wilshire BoulevardSuite 510Beverly Hills, California 90212(424) email@example.com
5Laura A. Zwicker is a Partner at Greenberg Glusker FieldsClaman & Machtinger LLP and a Chair of the Firm’sPrivate Client Services Group. Laura’s practice focusesprimarily on counseling high net worth individuals and theirfamilies in connection with domestic and international estate andtax planning issues and business succession planning; advisingfinancial institutions with regard to fiduciary and custodialissues; forming, advising and dissolving non-profitorganizations; and probate and post-death trust administration.Laura is a member, Executive and Planning Committes, 2013USC Gould School of Law Tax Institute, a member, STEP(Society of Trust and Estate Practitioners), and an advisoro toMarat Daukayev Ballet Theatre.Laura holds a JD degree, magna cum laude, from IndianaUniversity 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 Stars21st FloorLos Angeles, CA 90067(310) 785-6819www.greenbergglusker.comLZwicker@greenbergglusker.com
6Alexander B. Kasdan is a Managing Director at DelMorgan & Co. He has morethan twenty years of investment banking, real estate, corporate law and corporatestrategy experience. Alex has executed over 100 domestic and cross-bordertransactions 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 atBarrington Associates in Los Angeles, where he headed the restructuring group, PeterJ. 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 FowlerLLP), where he specialized in mergers and acquisitions, private equity and corporatefinance transactions. In addition, Alex served as Corporate Counsel in charge ofbusiness development at Schlumberger Ltd., a global oilfield and information servicescompany.Alex graduated magna cum laude from Middlebury College with a B.A. degree inEconomics and Italian and was elected to Phi Beta Kappa during his junior year. Inaddition, he holds a J.D. degree from Columbia University Law School and has studiedat the University of Florence in Italy. Alex is admitted to the Bar in the State of NewYork.Alex is a Senior Advisor to Governance and Transactions LLC, an advisory firmestablished in 2003 by Mr. James L. Gunderson, former Secretary and General Counselof Schlumberger Limited, to assist boards, management and owners with corporategovernance, compliance, structuring and strategic transactions.100 Wilshire Blvd.Suite 750Santa Monica, CA 90401(310) firstname.lastname@example.org
7Anna Spektor, the Founder and President of Expert Presence,specializes in digital and event marketing, public relations andbrand communications programs for professional services firms. Asa business development consultant, Anna helps clients develop andimplement comprehensive strategies designed to generate new andsolidify existing referral relationship, elevate profile, and buildbrand awareness. Anna is also the founder of Expert Forum andExpert Webcast, affiliate companies focused on providing theprofessional community with quality educational content,continuing professional education and targeted networkingopportunities.1999 Avenue of the StarsSuite 1100Los Angeles, CA 90067(310) email@example.com
8Fiduciary Duties and Obligations of Spouses ina Family Owned BusinessPresented by:Carole Azran-Dickstein, Kolodny & Anteau9100 Wilshire Boulevard, 9th Floor West TowerBeverly Hills, CA firstname.lastname@example.org
9STANDARD OF CARE BETWEEN SPOUSESWhat is the standard of care betweenHusband and Wife?
10STANDARD OF CARE BETWEEN SPOUSESUntil the mid-1970s, the "good faith" standards were imposed uponmarried 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 whichsignificantly changed the duties between spouses.
11DUTY OF HIGHEST GOOD FAITH BETWEEN SPOUSESFamily Code 721(b):This section imposes a fiduciary duty of the highest good faith and fairdealing on each spouse, such that neither shall take any unfair advantage ofthe other.The fiduciary relationship between spouses is subject to the same rightsand duties of non-marital business partners, as provided in theCorporations Code.
12So how would Husband’sfiduciary duties come into playin the “sale of business scenario?
13In general, either spouse has the right to manage and control the communityproperty subject to an exception regarding a business.A spouse who is managing a business which is all or mostly all communitypersonal property has:1. Primary management and control of that business; and2. 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 inthe operation of the business.[FAMILY CODE SECTION 1100(D)]RIGHT TO MANAGE COMMUNITY PROPERTY
14DUTY OF FULLAND COMPLETE DISCLOSUREEXISTS BETWEEN SPOUSESPending the division of community assets and debts, Husband would also have todisclose :- all material facts and information regarding the existence,characterization, and valuation of all assets (and debts) in which the community hasor may have an interest; and- to provide equal access to all information, records, and books thatpertain to the value and character of those assets and debts, upon request.[FAMILY CODE SECTION 1100(E)]
15FAILURE TO MEET FIDUCIARY DUTIESSo for those of us who work with clients as their financialadvisors, business lawyers or business managers, whathappens if the divorcing managing spouse does not meethis fiduciary duties?
16BREACH OF FIDUCIARY DUTYHusband may be subject to aBreach of Fiduciary Duty Motionfiled by Wife.
17In the landmark Breach of Fiduciary Duty Case, Marriage of Feldman, Husbandwas a very successful real estate developer in San Diego, who tried to hide someof his assets from wife during their divorce proceedings.For example, Wife’s attorneys asked Husband’s attorney if Husband hadacquired any new properties. Husband’s attorney responded that Husband wasleasing a residence.Wife later learned that Husband had formed a new business entity afterseparation and bought a $6,000,000 residence in the name of the new businessentity which leased the home to Husband.Husband also failed to disclose a 401k Plan and an Israeli Bond.Hypothetical - GOOD LAWYERING orSANCTIONABLE GAME PLAYING?
18Wife filed an application with the Court seeking:1. Monetary sanctions for failing to make financial disclosures; and2. Payment of her attorney’s fees which is mandatory under the statute.The Appellate Court affirmed the trial Courts granting of W’s Motion awarding her$250,000 in sanctions for breach of fiduciary duty and $140,000 in attorneys fees.Hypothetical – GOOD LAWYERING orSANCTIONABLE GAME PLAYING?
19If one spouse commits fraud against the other, the Court has discretionto award as a type of punitive damage, 100% of any asset undisclosedor transferred in breach of the fiduciary duty.If no fraud found, the undisclosed asset is equally divided between theparties.[FAMILY CODE SECTION 1101]IF FRAUD – PUNITIVE DAMAGES SHALL BE AWARDED:
20Fiduciary Duties implemented to ensure California’s public policy:1. To preserve, and protect community assets and liabilities that exist at the date ofseparation to avoid dissipation of the community estate before distribution;2. To ensure fair and sufficient child and spousal support awards; and3. To achieve a division of community and quasi-community assets and liabilitieson the dissolution of marriage.[FAMILY CODE SECTION 2100]PUBLIC POLICY FAVORS PROTECTING THECOMMUNITY ASSETS
21ADDITIONAL FIDUCIARY DUTIESNo 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 effectiveimmediately when an action is initiated. The ATROs prohibit each spousefrom:Transferring, encumbering, hypothecating, concealing, or in any way disposingof any property, real or personal, whether community, quasi-community, orseparate, 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.
22Hypothetical - Sale of BusinessMarried couple, H running the business, and in the process of negotiating asale to a strategic buyer, in the same industry. W files for divorce and servesH a week before the scheduled closing date.How does the filing of divorce by W change the negotiations?
23Hypothetical - Forced Sale of BusinessMarried couple owns a business held as community property and they have athird party owner who owns 50% and this third party wants to buy out the50% held by the married couple, who coincidentally are in the middle of adivorce.Can the third party partner force a sale under the terms of theShareholders Agreement?
24Hypothetical - Corporate WoesMarried couple going through a divorce at a time when the companygets a call from City National Bank that the loan on the business hasbeen 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 independentcounsel?
25Hypotheticals - Divorce and Business ValuationsDivorcing H and W do not get along, are both integral to running thebusiness, do not have significant assets outside of the business andcannot agree on the valuation.Business is sold in divorce, H continues on with a consulting agreementand an earn-out. What is the value to W in divorce?
26ClosingI hope this brief discussion of the fiduciary duties and obligationsbetween 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 theydo not breach any of these duties; and3. Some resources so that you can consult with other professionalsshould your clients ever confront fiduciary duty issues.
27Forensic Accounting Issues in DivorcesIrwin Nachimson, Partner
28Income Issues and Property IssuesThere are two categories through which we need to lookat a small business in a Divorce Setting• How much income is currently being generated by thesmall business for the purpose of calculating support andvalue.• What is its value?
29Income Issues and Property IssuesIncome being generated by the company is typicallyassigned to the in-spouse for the purposes ofcalculating support.• How do we determine the true income of a companyand what documents are needed?
30Income Issues and Property Issues• Basic Documents Needed To Determine TrueIncome:– Company Tax Returns– Company Trial Balances and General Ledgers– Company Contracts– Bank Statements– Account Receivables and Payable LedgersIncomeAvailable for Support
31Income Issues and Property Issues• Typically we look at Income for the most recent12 Month Period– How do We Determine a True Income Number?1. Add Backs:Prerequisites – Example:Auto expensesMeals and EntertainmentTravelCharitable ContributionsDivorce Legal FeesPensionsMedical and Life Insurance
32Income Issues and Property IssuesHow do We Determine a True Income Number?(continued)2. Taxable vs. Non Taxable3. Depreciation – Non Recurring Expenses4. Reductions From Income – Non Recurring Income(i.e., Expiring Contracts)
33Income• Income vs. Cash Flow• Income Generated – Includes AccruedReceivables vs. Cash Approach (Does NotInclude Accrued Sales)• Also Applies to Payables• How much is other spouse retaining within theCompany and not reporting as a distribution
35Income and Valuation• Valuation MethodsI. Income Approach– Takes into account• Risk• Appropriate Multiple & Reasonable Compensation• Historical EarningsII. Market Approach – Other ComparableCompaniesIII. Asset Approach – Assets Only
36Asset Approach• Various DiscountsLack of ControlLack of Marketability
37Asset Approach• How do you buy them out?Award Other Assets (House)Notes PayableShare of the Profits
38Valuation - Issues Involved• Value of Small Business• Dates of ValuationDate Closest to TrialService Business – Date of SeparationOther Stipulated Date
39The Corporate Law PerspectivePresented by:James K Baer, PartnerBaer & Troff, LLP
40OverviewSplitting up a private family-owned business in the context of a divorceproceeding is similar to dividing up any privately-owned business.But note…• The personal issues and dynamics are more likely to be important and to havehigh emotional content• Special limitations and requirements imposed by Family Law including:• The requirement that any transmutation of property interests be made inwriting by an express declaration that is accepted by the spouse whoseinterest is adversely affected• The imposition of fiduciary duties in transactions between spouses: aduty of the highest good faith and fair dealing on each spouse andneither shall take advantage of the other.
41Unique 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/orinterests (e.g., one spouse is central to the development and growth of thebusiness and one is in a supporting role).• One spouse is active in the business, the other is a co-owner only (at least forthe most part).
42Implementation of the Split-UpWhen divorce means splitting up the family business, there are several differentways to implement the split-up, which may vary depending on economicobjectives of each spouse, willingness of the spouses to cooperate and the extentof 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 findinga trusted third party to operate and control the business working together orgiving one spouse substantial control and protecting the rights of the other totheir share of assets and profits.
43Information RightsAccess to information is essential to protecting a shareholder s investment,particularly in private family-owned business where there is unlikely to beanother source for that information:• Minimum rights are available by statute and the available statutory rights aredifferent depending on the state and the entity.• Specific rights to information can (should be) included in the applicable certainorganizational documents• A shareholder seeking to preserve his or her equity interest in a family-ownedbusiness should insist on basic information rights and exercise them regularly.
44Fiduciary Duty Provisions• Usually the owners and managers of a privately-owned company are carefulto limit the fiduciary duties of one owner to another.• The statutory duties (under corporate law) of owners to each other are verylimited.• 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 careand prudence in the operation of a business.• Duties of Loyalty: Corporate fiduciaries breach their duty of loyaltywhen they divert corporate assets, opportunities or information for theirpersonal gain; corporate fiduciaries are generally prohibited to put theirpersonal interests ahead of those of the corporation.
45Covenants Not to Compete• California Family Law provides that each spouse shall act with respect tothe other spouse in the management and control of the community propertyand liabilities in accordance with the general rules governing fiduciaryrelationships. . . .• Obligation to make full disclosure of all material facts and informationregarding the community assets and liabilities and to provide equal access tothe information records and books upon request.• In the event of a sale of the business to a third-party or a buy out by onespouse of the interests of the other spouse in the business, it is likely that thebuyer will request a non-compete from the seller(s).• Buy-Sell agreements should include an obligation of the seller to agree to anon-compete as a condition to receiving the purchase price.• In California, need to be sensitive to the limitations on non-competes.
46Capital StructureThere 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 canreduce risk to the creditor spouse and limit the ability of the spousecontrolling the company to adversely affect the rights of the creditor spouse.• Separating Assets and Business: Can separate an asset (e.g., intellectualproperty) and give it a protected return (e.g., a royalty).• Shareholders Agreements: Can provide an alternative way to give oneshareholder specific control over certain governance or operational issues.
47Involuntary DissolutionIf no resolution with respect to a split-up can be reached, a shareholder holdingnot less than 1/3 of the equity interests can file a complaint seeking involuntarydissolution, if one of the statutory grounds exists.Statutory grounds include:• An even number of directors who are equally divided and cannot agree as tomanagement of the company s affairs.• Internal dissension of 2 or more factions of shareholders who are deadlocked sothat the company s business cannot be conducted.Involuntary dissolution can be avoided if 50% or more of the shareholderspurchase for cash the shares of the shareholders seeking dissolution at their fairvalue.
48Valuation / Recapitalization / SaleAlexander B. Kasdan, Managing Director
49Assembling 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
50Valuation of the Business Reason for Valuation Fair Market Value Fair Value Other Methodology Minority and Marketability Discounts Personal transactional tax implications Due diligence issues
51Issues 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
52CompanyPreparationMarketing theCompanyReceiveProposalsDue Diligenceand LOINegotiations andClosing5-7 weeks 6-12 weeks 3-4 weeks 4-6 weeks 4-8 weeks• Informationgathering• PrepareCompanySummary• PrepareInformationMemorandum(IM)• Finalize list oftargets• Contacttargets• Execute CAs• Distribute IMs• OrganizeVirtual DataRoom• Address anyother issues• Receive writtenindications ofinterest• Select shortlist• ManagementPresentations• Initial duediligence• Solicit final bids(LOIs)• Distribute draftagreements• Receive finaloffers• Evaluate LOIs• Negotiate with finalbidders• Coordinate workinggroup (counsel,accountants, otheradvisors)• Final due diligence• ClosingTotal Time =22–37 WeeksIllustrative Sale Process – Steps and Timeline
53The main responsibility of business ownersand management is to continue runningthe business – need to meet allprojections and forecasts
Keeping the Family in the FamilyBusiness: An Estate Planner sPerspective On Family BusinessSuccession Planning1900 Avenue of the Stars, 21st Floor, Los Angeles, California 90067PRESENTED BY:LAURA A. ZWICKERAttorney at LawD: email@example.com
What Happens Now? Valuation Intra-family buy/sell orshareholders agreementsare not likely to be bindingon IRS Sale of shares may haveestate tax implications Non-controlling/fractionalinterests Unbundling of integratedbusiness assets
What Happens Now? Allocation of Control/Ownership All to active family members Equal equity interests, but all voting interests to activefamily members Equal equity and votinginterests, but active familymembers as businesstrustee for passivefamily members
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
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
What Happens Now? Liquidity Equalizing allocation tonon-participating familymembers Fund buy-outnon-participating familymembers Fund estate tax payments
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
Generating Liquidity Outside Investors Sale of entire company Sale of non-controlling stake Integration into management Acquire expertise alongwith liquidity Conventional Borrowing 6166 Election
Keeping it in the Family Cultural sensitivities Are there family members with appropriateexpertise Protecting family ownership on divorce/gifting Education and common vision for both active andpassive family members Exit plan for passive family members Dispute resolution system Employment policy for next generation
Gift And Estate Tax Current Credit/Exemption LevelsYear Gift/Estate TaxCreditGift/Estate TaxRateGSTTExemptionGSTT Rate2012 $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 $14,000/donor/donee/year*Under the President s 2014 Budget Proposal, credit and tax rates would return to 2009 levels in 2018
CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimileKey$Person$Insurance$• What+is+Key+Person+Insurance?++• Advantages+of+having+insurance+on+business+owners+and+employees+• Help+oﬀ+set+revenue+loss+• Finance+recruiHng+and+training+• Help+maintain+credit+raHng++• What+is+a+key+person’s+value+and+methods+of+determining+value+• MulHple+of+compensaHon+• Cost+of+replacement+• ContribuHon+of+proﬁts++• Common+mistakes+with+Key+Person+Planning+• Using+term+insurance+that+has+restricHons+on+converHbility++
CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimileBuy/Sell$Plans+• Cross+purchase+plans+• EnHty+purchase+plans+• Beneﬁts+of+Buy/Sell+plan+• Pegs+the+value+of+the+business+• Guarantees+a+known+buyer+• Insurance+liquidity+• The+need+to+update+Buy/Sell+agreements+as+a+business+grows+• Disability+Insurance+oSen+forgoTen+
CONFIDENTIAL+|+9595 Wilshire Boulevard, Suite 510 · Beverly Hills, CA 90212 · 424-253-7400 telephone · 424-253-7401 facsimileThe$Importance$of$a$Life$Insurance$Policy$Audit$for$Your$Business$Owner$Clients$+• Are+these+policies+properly+structured?+• Conﬁrm+Owner+and+Beneﬁciary+designaHons+• Example:+ExWWife+is+sHll+named+beneﬁciary+(never+changed+aSer+divorce)+• Review+ﬁnancial+strength+raHngs+of+carrier+• Review+inforce+illustraHons+to+determine+performance+• Stress+test+policy+performance+with+illustraHons+with+reduced+interest+rates+or+reduced+gross+rates+of+the+return+• Review+mortality+charges+of+exisHng+policies+as+companies+are+now+using+updated+mortality+tables+as+people+are+living+longer+• L.E.A.F$(Life$Expectancy$Adjusted$Funding)$• A+method+in+which+to+more+eﬃciently+operate+an+exisHng+life+insurance+policy+• If+there+is+a+change+in+health+postWissue,++there+may+be+the+potenHal+to+reduce+funding+into+the+policy+as+a+result+of+a+shorter+life+expectancy+• Increased+IRR+on+Death+Beneﬁt+
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