Succession Planning

For many of the very reasons you would not wait until the last year before retiring to begin funding your retirement plan, proper succession planning needs the same advance thought and strategic planning to be positioned to leverage tax efficiencies, preserve your goals, guard against the unexpected and, ultimately, maximize value to you and your business. Depending on the plan and its transition objectives, it can also infuse a sense of cohesive stability into the company and its employees.

Laying the foundation and implementing a well-conceived plan, suited to your particular business and individual needs, is just as vital to a professional medical practice as it is to a closely-held manufacturing business; and as relevant whether the successor-apparent is one or more family members, unrelated loyal employees, or even a competitor, supplier, or customer uniquely positioned for a strategic acquisition. The attorneys of Morris James’ Succession Planning practice have guided a wide array of closely held and family-owned businesses and professional practices through successful business transitions.

The Plan – Getting it Underway

An effective roadmap to succession planning begins with well-tailored comprehensive strategies, developed years before anticipated implementation. The plan is designed to position the company and its principals to achieve their economic goals, as well as provide business continuity. Dynamic by nature, it should remain flexible enough to adjust to the ever-changing business environment and economic conditions, as well as the key personnel in place to carry out the plan. Because the succession plan often involves various aspects of multi-generational ownership, it is essential that tax, business, and estate planning considerations are taken into account at all levels of ownership to minimize the consequences of transfer and maximize the benefits to be achieved.

Professional Practices – Planning within the Regulations

Since we also represent physician groups and other professional practices in business matters pertaining to their profession, we recognize that practice continuation in that context may bring other techniques, professional licensing, and additional regulatory compliance into play. When counseling professional practices on succession planning, whether in bringing on junior practitioners to come into ownership, formation of networks to take advantage of certain economies of scale, or acquisitions and other affiliations, we listen carefully to the stated goals and strive to guide them to achievement while navigating the complexities they face in today’s regulatory environment.

Players and Tools

The following provides a brief preview of those involved in the Succession Planning process, and a few of the techniques that may be utilized to achieve their goals:

The Potential Players

• Current owner(s)
• Family member(s)
• Key employee(s)
• Industry-strategic acquisition candidates seeking to achieve vertical/horizontal integration

The Potential Tools

• Family entities to maximize “disappearing” tax value through fractional interests
• Tax efficient use of life insurance to provide liquidity and fund buy-outs
• Tax sheltered sales to Intentionally Defective Grantor Trusts
• Tax efficient use of Grantor Retained Annuity Trusts (GRATs)
• Use of preferred-return equity and/or voting/non-voting equity
• Stock appreciation rights/phantom stock plans
• Corporate tax elections to mitigate harsh consequences of sale
• Carried interest programs

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Team Leaders

James J. Gallagher II

Partner

Cindy L. Szabo

Partner