InKnowVision March 2014 Buy-Sell Problem Solver Case Study

(630) 596-5090 www.InKnowVision.com All Content Copyright © 2014
@InKnowVision
InKnowVision, LLC
InKnowVision
The Business Owner
Protection Program
The Buy‐Sell Problem Solver
Case Study
How a Routine Buy‐Sell Review
Created a Large Planning Engagement

www.InKnowVision.com All Content Copyright © 2014
The Advisor’s Pain
Are you finding:
• Hard to differentiate
• Competition  harder to develop new business
• Business owners are very hard to engage
• Comprehensive planning scares clients
• Need to systematically increase revenues fast

The Owner’s Pain
Their reality:
• The business owns them
• If they lost their stake in the business, they’d lose
everything
• Upset about paying too much in taxes
• Their wealth is locked up inside of business
• Worried about how to motivate key EE’s without
giving away the business
• They get bombarded with sales approaches daily
• Too focused on growing their business to meet with
you

The Opportunity
• 12M Baby Boomers own businesses
• 70% expected to change hands between 2020‐2025
• With NON‐Boomers, 14M owners need help getting
themselves and their $ out of the business in next
decade
• 69% of small biz owners expect that their company
value will be a source of retirement income*
*July 2010 Gallup pole of 604 small business owners with annual revenue<$20M
Robert Avery of Cornell University, 2006

Powerful Client
Engagement System
2‐part System that Creates Leverage
1. 4‐part Analysis & Deliverable
2. Turnkey Client Engagement System

4-part Analysis &
Deliverable
• The Legal Audit
 To protect the business from creditors and lawsuits
• The Tax Minimizer
 To reduce taxes on business interest transfers and current
income
• The Value Identifier
 To understand and leverage the financial value of the
business
• The Funding Review
 To make sure the money is there when they need it

Turnkey Client
Engagement System
• Client engagement brochure
• Client focused process diagram
• Drip marketing content
• Case studies
• A sample review
• Data gathering forms
All tools can be co‐branded

Client Brochure

Client Process Diagram

Data Gather Form

6 Case Studies & Drip
Marketing Content
1. Buy‐Sell Value Costs Owner $15M
2. Buyout Proceeds Withheld From Heirs
3. Buy‐Sell Agreement Creates Tax Hit – For No Reason
4. Surviving Owner Forced to Overpay to Keep Business
5. Buyout Triggers Loan Acceleration
6. The Golden Goose Leaves and Takes The Eggs

The Buy-Sell
Problem Solver
Helps Owners
• Protect their largest asset from creditors and lawsuits
• Reduce taxes on business interest transfers and
current income
• Understand and leverage the financial value of their
business under a variety of circumstances
• Make sure the money is there when they need it

Helps Advisors
• Get more referrals
• Engage more business owner clients
• Predictably increase revenues
• Create more value and follow‐on work
The Buy-Sell
Problem Solver

Company Ownership
Duncan’s, Inc. – $100 Million
Tad – Brother –
65%
Jeremy – Son**
Tina – Sister –
15%
Duncan – Husband –
15%
Jason – Son –
5%
** No current or future interest in the business
Our clients:

Stock Redemption
• Traditional plan in place
• Buy out is properly funded!
• $105M term insurance
• Everything seems to be in place, where did the family
go wrong?

Stock Redemption
Agreement - Current
Duncan’s, Inc. – $100 Million
Tad ‐ 65% Tina – 15% Duncan – 15% Jason – 5%
At death, Duncan’s, Inc. redeems interests with life insurance proceeds.
Business currently owns $105M of term insurance.

Duncan & Tina
• $60M estate
• $30M in Duncan’s, Inc. interests
• $10M in other illiquid assets
• Estate taxes: $21M today ‐ $52M life expectancy
• Equal inheritances for Jason and Jeremy
• Jason gets Duncan’s, Inc. interests
• What’s left for Jeremy?
• 75% of their estate to heirs
• Very charitable family – Duncan Family Foundation

What if Tad Dies?
• $60M estate becomes $125M estate
• $46M of estate taxes
• Unequal inheritances for Jason and Jeremy
• Jason may have to distribute company profits to
Jeremy to equalize
• Large taxable estates created for Jason and Jeremy
• Charitable gift at death greatly decreases their family’s
inheritance

Irrevocable Dynasty
Trusts
Duncan & Tina Dynasty Trust
Jason, Jeremy &
Grandchildren
Transfer Duncan’s,
Inc. Interests – Gift
and Sale
• Appreciation is free of estate taxes
• At Tad’s death, $65M of Duncan’s,
Inc. interests outside of Duncan &
Tina’s estate

Purchase Life Insurance
Dynasty Trust Life Insurance
• Income & estate tax free
• Equalize Jeremy’s non‐business inheritance
• Wealth replacement
• Purchase any remaining Duncan’s, Inc. interests in Duncan & Tina’s estate

New Buy-Sell Agreement
Duncan’s, Inc.
Tad/Heirs
Dynasty Trust
1 2
Duncan Tina
4 5 4 5
3

Duncan’s, Inc.
Tad/Heirs – $65M of Life
Insurance Proceeds
Tad’s Death:
1) Tad’s estate transfers Duncan’s, Inc. interests to
Dynasty Trust
2) Dynasty Trust purchases interests with life
insurance proceeds
Advantage: Duncan & Tina’s estate does not
increase in value by $65M
Dynasty Trust – $65M
Duncan’s, Inc. Interests ‐
$100M Total
1 2

Duncan’s, Inc.
Duncan Tina3
Duncan or Tina’s Death:
3) Remaining interests pass to surviving
spouse (marital deduction)

Duncan’s, Inc.
Dynasty Trust
Duncan Tina
4 5
3
4 5
Duncan & Tina’s 2nd Death:
4) Remaining interests pass to Dynasty Trust
5) Dynasty Trust purchases interests with life
insurance proceeds
Advantage: Duncan & Tina’s estate has
liquidity to pay estate taxes/make gifts to
charity

Overview
• Two Irrevocable Dynasty Trusts
• Estate tax savings exceeding $25M
• New Permanent Life Insurance in Trust
• $43M
• Two Qualified Personal Residence Trusts (QPRTs)
• Estate tax savings of approx. $5M
• Testamentary Charitable Lead Annuity Trust (TCLAT)
• Charitable gifts exceeding $50M
• Eliminates estate taxes

(630) 596-5090
715 Enterprise Drive
Oak Brook, IL 60523
All Content Copyright © 2014
www.InKnowVision.com
@InKnowVision
InKnowVision, LLC
InKnowVision
Google+
Q&A
For more information contact
Greg Maddox
Greg@ikvllc.com
847.269.4624
Thank You!

InKnowVision March 2014 Buy-Sell Problem Solver Case Study

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InKnowVision March 2014 Buy-Sell Problem Solver Case Study