C3 Financial Partners

Who Do You Want to Receive Your Money – IRS, Family, or Community?

Most of our clients have three objectives:

  • They want to minimize taxes;
  • They want to maximize the amount that goes to their family, and;
  • They want to benefit the community.

These objectives become a challenge when it comes to selling a business during their lifetime and dealing with IRAs at death.  Watch our video to learn how a standby trust may help you accomplish your goals.

Let’s discuss selling a business.

  • Over 90% of the businesses in our country are closely held.
  • Nearly 80% of those owners define themselves as charitable — they donate more time and more money.
  • 30-40% plan to sell, or exit, their business within 5 years.
  • Roughly 70% want to include charitable giving as a part of their exit strategy.

Two of the obstacles business owners may face are:

  • Very few of these businesses are owned by just one person. Many are owned by multiple individuals, sometimes family members, sometimes not.  We have an article on our website that my CPA partner, Carolyn Smith, has written on that subject.  There is also a short video she did that you may want to review.
  • The next obstacle is that once negotiations start, and this is probably a bigger one, everyone, buyer and seller, are focused on the transaction and it’s very difficult to get them to think about anything else.

Let’s talk about retirement plans, specifically, IRAs.

The IRS has determined that there is $8 trillion in traditional IRAs.  They do not like the idea that money is being wrapped up for a long period of time with the extended payouts.  For IRAs that are over $10M, there are major changes coming down the pipe that have been included in the recent tax bill from the house.

So, what are the obstacles for IRAs?  As previously mentioned, the stretch is gone.  With few exceptions, you can no longer go beyond 10 years.

Some common obstacles these two issues have:

  • Lack of awareness of tools and techniques on behalf of the individuals, and in some cases, their advisors.
  • Income is subject to claims of creditors coming out of the sale of the business or the IRA issues.  In addition, the management of the funds may not be as efficient as it was during the individuals’ lifetimes, the business owner and the IRA holder.
  • One thing that is almost certain is taxes are likely to rise.

The solution is all three objectives identified above.  We suggest our clients create a standby trust to hold either the retirement assets or the proceeds from the sale of the business.  A standby trust is created during a client’s lifetime.  It is on standby, or dormant mode, and will become operational only when specified trigger events occur.  Most importantly, start planning today.

Remember, these tools only have application if your objectives are to: minimize taxes; maximize the amount to the family; and benefit the community.

At C3 Financial Partners, we look forward to helping you gain clarity in your goals and objectives, confidence that you are making the right decisions, and coordinating with you and your other advisors.

Individuals and businesses, even nonprofits, engage us to identify, prepare for, and manage some of the risks they can't control.
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