Wealth Harvesting: More Than Just Retirement or Succession Planning
EXECUTIVE SUMMARY * The first step in developing a wealth harvesting plan is to identify the client's departure objectives, focusing on four categories: providing for the client and the people and causes they care about; ensuring a smooth and successful succession; protecting assets; and developing tax-smart strategies. * It takes a variety of expertise to help create a wealth harvesting plan. In addition to the CPA, the team should include someone with a good working knowledge of the company's operations; a finance person; an estate planning and transactional attorney; experts in valuation, insurance and compensation; and, often, a trusted friend of the client. * Priorities should be established according to the client's most important personal and business objectives. It is important to manage the client's expectations at the outset by dividing the project into discrete tasks. * Presenting a worst-case scenario of what would happen in the event of the client's sudden death can sometimes be the best way to motivate the client to act. Without planning, for example, the client's company may have to be sold to pay estate taxes. * Solving the larger, more personal issues will help the technical aspects of tax and retirement planning fall into place. * Some solutions the client may wish to consider as part of a wealth harvesting plan include executing a buy-sell agreement, establishing a grantor trust, and creating a more sophisticated compensation structure. ********** [ILLUSTRATION OMITTED] Harry Golucki is beside himself. After spending the better part of four decades building the Nevada Manufacturing Company (NMC) into a consistently profitable $6 million business, at the age of 67 he is ready to retire and enjoy himself with Happy, his wife of 40 years. But he is feeling overwhelmed with the choices he faces. For example: * How can he leave the company to his son and daughter, who have been working there full time since college, and still maintain enough personal cash flow to maintain his current lifestyle? * How can he be fair to his third child, who has never had any interest in being involved in the family business? * What can he do to be sure that the company is able to retain certain key employees after his retirement? * How can he do all this in a way that allows his children, upon his death, to avoid selling the company to pay estate taxes? Jeff Saccacio, the head of wealth planning for Deutsche Bank Private Wealth Management's Western Region, helps people like Harry and Happy answer these questions. "Imagine if, in your capacity as Harry's CPA, he asks you to develop a plan for his retirement and continued compensation, succession at his company, and estate planning," Saccacio says. "The job is much more than retirement or succession planning. That's why it really should be called wealth harvesting." For the past three summers, Saccacio has been a part of a panel on closely held business succession planning at the AICPA's Advanced Estate Planning Conference. At the conference, moderated by David Johnson, a principal at Ernst & Young LLP in Cleveland, Johnson and his team of experts use a case study like Harry and Happy's as a way, in a single morning, to cover all the important personal and business issues that need to be considered for a small business owner to develop an exit strategy. DEPARTURE OBJECTIVES Johnson and Saccacio agree that the first step in developing a wealth harvesting plan is to identify the client's departure objectives. To encourage his clients to think about the answers to the most difficult questions, Saccacio has created a detailed "Wealth Harvesting Questionnaire." He also uses the acronym "PSST!" to help clients organize their thinking. * P = providing--For themselves and the people and causes the entrepreneur cares about. …