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Wealth Preservation Case Study

As Tony Palmer, owner of Palmer Manufacturing reflected on his forthcoming 65th birthday, he felt conflicting emotions. The good news was that his business was more successful than he ever imagined. Starting with a single manufacturing line producing automotive plastic dashboards, the company had grown to become one of the top 20 specialty-manufacturers in the nation. With $75 million in sales, Tony was justifiably proud of what the company had achieved.

However, Tony couldn’t quite shake a sense of foreboding that dark clouds were quickly gathering on the horizon driven by the weak economy and global competition. Since starting the company with $2,000 borrowed from his parents, Tony’s plan had always been to retire by the time he was 65. As he pondered his forthcoming birthday, Tony was no longer completely confident he would be able to do so.

The cause for Tony’s concern was a recent article he read in the business press. According to several highly respected professionals, there were dramatic changes in the estate and income tax laws in the past  few years. This most recent article, written by one of Tony’s favorite columnists, stated that income taxes were  40% plus in the top brackets and estate taxes of 40%.  Unfortunately Tony, like many individuals running growing and profitable family owned businesses, he had procrastinated about putting in place a comprehensive business transition and estate plan. Worse he did not have a good financial plan that fit into his business or estate plan. He was not comfortable with his situation.

“Well that’s not entirely true,” said Tony to himself. “I did meet with Alex my accountant who did my taxes and Sue my attorney who revised my will and some trusts. And I meet with Stan once a year to go over my investment and insurance portfolio, and I have a business succession plan in place. I think its all ok.  ”


Patchwork Planning - Different Plans, Different Times with Different Advisors

However, the feeling that he had a patchwork of plans and was missing something motivated Tony to schedule lunch with his cousin Ben who had recently  transferred part of his  own privately owned company to his key people and his son. “If anyone knows about this stuff, Ben should be the one,” Tony reflected.

“That’s not a good sign-talking to yourself,” joked Ben as he joined Tony at his table.

“All the more reason to retire,” replied Tony. “If that’s even still an option in three years.”

“So that’s what you wanted to meet about.”

“I’ll admit, I’m getting a bit concerned,” said Tony with a shrug. “Everything I read indicates that taxes are going up and I know that I’m pretty much right in the middle of the baby boom generation. There are going to be lots of businesses for sale in the next few years. I’m getting worried about valuations and trying to decide if I should keep the business or sell and how to maximize the value for me and my family.”

“That’s understandable. I’m glad I set the planning in place when I did,” Ben replied.

“Well that’s the reason I wanted to get with you. I figured since you’ve gone down this road you’d have a perspective that would be helpful,” said Tony

“I can tell you one smart thing that you’re doing,” commented Ben.

“What’s that?”

“You’re thinking about these issues now. If I had to do it all over again, I wouldn’t have started getting the proverbial ducks in a row  years before I wanted to transition my business to my son.”

“But you did OK,” said Tony.

“Oh sure, in the end I did fine. But to be totally honest with you, there was a period of time when I wondered if I was going to reap much reward for the 20 years of effort I spent on building the business. I know I did not really optimize the value of my business and there were things missed in the process that could have been planned better. ”

"I Procrastinated - Thought I had it All Done"!

“What do you mean?” asked Tony.

“Well the first problem was that I procrastinated. I justified my lack of doing anything by telling myself I had to focus on the day-to-day business, my advisors had me covered..…but that really wasn’t the truth. I knew that this was going to be a complex project with a lot of moving parts, and quite frankly I didn’t know where to start.” My advisors were not  even asking me questions they should have been asking.

“Why didn’t you just call up one of your advisor's and tell them?” asked Tony.

“Which one?” replied Ben. “I had a lawyer who did my corporate work and his firm did estate planning documents, a tax accountant, an insurance guy, and an investment broker advisor . Each of them had contributed certain parts of the planning I have in place. However, when I dug into it, I discovered that some pieces and plans in place were actually in conflict with each other or in some cases outdated. In fact they were not even relevant for this economy or meeting my needs for  the future. 

Sure, I had a basic estate plan in place if all of a sudden I died, but the strategy for transitioning out of the business was a total mess if I lived and worse if I died. In the end I had different plans, a bunch of loose ends but I was not sure how all of the pieces fit.”

“So what did you do?”

“The first thing I did was to meet with each of my advisors. I thought that one of them was the person I should use to consolidate my planning and quarterback a game plan to evaluate my current situation and pull together a comprehensive business continuation and wealth preservation plan. Boy, that was wishful thinking.

Also, simply finding the documents was a huge headache. I knew that I had saved everything, but since we’ve moved a couple of times, they were in different files and boxes scattered all over the place. Each advisor had different pieces of information.

To add to this confusion, I found the shareholder agreement with my brother was not even signed and the valuation of the shares was out of date.”

“I almost gave up a couple of times, but my wife kept reminding me that over 80% of our net worth was tied up in the business. That was the motivation I needed to get my act together and figure this out.”

“So how did the meetings go?” asked Tony.

“Not as well as I hoped,” replied Ben. “What I was afraid of turned out to be true - lots of overlapping legal and banking documentation. It was a patchwork of plans that certainly weren’t coordinated or updated. We also found the insurance policies were expensive and not performing. Some were included in my estate which could increase my estate tax.

I guess that’s what happens when you take a head-in-the-sand, I have it all done  approach to estate, business succession, exit and financial planning issues.”

“Each of the advisors tried to explain my options as simply as possible, aside from the time I had to invest meeting with each of them, the technical language was pretty overwhelming. I could feel my stress level going up. I really began to wonder if I or anyone would ever figure this out.”

“So what happened?”

Created a  Step - By Step Process to Organize my Planning

“I did what you’re doing. I met with a guy who had transitioned out of his business and asked him for some ideas. That’s how I ultimately began working with a Private Wealth  advisor who specialized in working with high net worth business owners” replied Ben.

“and what did they offer?” asked Tony.

“They use a proprietary process methodology,” continued Ben. ” They call it the "Triangle of Conflict and Risk". It was a process that helped to clarify objectives and issues,  identify conflicts and the threats to my wealth, estate and business transition that these conflicts created.

“They had a step by step process.  They pulled all of my existing plans together and other key data. Did an analysis of my overall planning, then they presented me with an executive summary and pointed out the strength, weaknesses, opportunities and challenges of my current plans and how they fit into the strategic plan for my business and wealth planning. 

Progress and Roadmap

From there, they worked with me to develop a comprehenisive wealth plan and roadmap based upon my goals for the creation,  and preservation  of my business and my wealth.  Just as important, they made it understandable for me and my family and  collaborated with my atttorney and accountant to ensure it was properly implemented.