Friday, December 31, 2021
Succession Planning
By L. Jake Carpenter, VP of Investor Rela�ons
CapitalPress.com
A large segment of the United States popula�on is
ge�ng to an age and stage of life where they are
ready to slow down and re�re. A number of these
individuals own a business, farm, commercial build-
ing, and or residen�al investment proper�es. There
seems to be a very common challenge that many of
these individuals are facing. My goal in this ar�cle is
to present some informa�on about some op�ons
that may help you to resolve some of the planning
issues you may have. No one strategy is appropriate
for everyone. It is important to explore the op�ons
based on your unique situa�on, and consult with
your professionals, to iden�fy which strategy or
strategies would be best for you.
Many succession plans may look something like
this. The plan is for one or more of the kids, or a
key person, to take over at the right �me, with
hopes that they do a great job running and manag-
ing your business. Your kids, or key person, pays
you a re�rement salary over �me. Eventually you
and your spouse will pass away, then the business
becomes theirs. This plan is great in the sense that
you only pay taxes on the income you receive each
year. But it does have some drawbacks. First, you
must have children, or a key person, interested in
working and taking over the business. The next is-
sue is that your re�rement is completely hinged on
them being able to grow and manage all the aspects
involved in your opera�ons to ensure the con�nued
success and growth of the business. Let’s face it,
your re�rement will require the growth of the busi-
ness so your re�rement income can increase and
keep up with the cost of living over �me. If the busi-
ness is mismanaged, you may have to come out of
re�rement and go back to work to salvage it.
It is important for you to understand that in a se-
cession plan, you have already iden�fied someone
to take over or sell the business to. Should the per-
son(s) end up not wan�ng to take over or buy, there
are valuable op�ons that you need to know about.
These op�ons may help you not only defer capital
gains tax, but also help you redeploy what you
would have paid in capital gains tax to create the
income and growth needed to fund your re�rement
19
with infla�on adjusted, tax favored income no
ma�er how long you live.
The good news is some of these capital gains de-
ferral strategies can work on the sale of a business,
primary residence, as well as personal asset sales.
And unlike the 1031 Exchange, proceeds from some
deferral strategies do not have to be invested in like
-kind property. This strategy allows you to put the
tax bill and poten�ally the deprecia�on recapture
back in your pocket to generate more income and
growth to fund your re�rement and to reclaim most
if not all the 40% tax bill. Most of our clients agree
that the tax proceeds are be�er off in their pocket
instead of the pockets of the IRS. Keep in mind that
the tax deferral op�ons available outside of a 1031
Exchange are not appropriate for everyone. We
encourage you to reach out and explore what op-
�ons are appropriate for you prior to selling a highly
appreciated asset of any kind.
Finally, an important part of your planning is to
ensure that your estate is passed in equal por�ons
to your heirs, or divided according to your wishes.
This may not be as difficult as one might think. If
one of your heirs is ge�ng a big asset, like the fami-
ly business, or rental por�olio, there are easy to
employ strategies that equalize the estate and pass
specific prearranged amounts to each heir without
having to deal with any transfer issues like probate.
Again, this ar�cle is intended to educate you on a
very basic level to make you aware that there are
op�ons and strategies are out there for you to use
when it comes to planning. Your planning does not
have to be complicated, stressful, or overwhelming.
We are here to walk with you every step of the way
to explore each and every op�on together with
your trusted professionals to come up with custom-
ized solu�ons that work best for your specific needs
and family dynamics. Would you like to learn
more? Give us a call at (509) 665-8349, or come by
the Equilus Capital Partners booth at the Northwest
Agriculture Show in Salem, OR, January 12-14, 2022.
We would love to meet you and answer any ques-
�ons you might have.
S232356-1