The first step is for the business owners to identify their personal and business goals and objectives. The following are some questions that the business owners and their advisors may consider when determining their goals and objectives:
• What are the business owner’s plans for the future of the business? Has the business owner considered succession planning?
• Has the business owner identified a successor or successors?
• Is the successor a family member, a child, an employee or someone else?
• When will the successor be ready to take on the task?
• How should the active versus inactive children be treated? Equitably versus equally?
• What is the timing for the succession plan?
• What is the business owner’s current lifestyle and what are the business owner’s expectations for his or her lifestyle during retirement?
• Are there any opportunities to reduce taxes?
• Has the owner considered his or her tax liability at death and has any planning taken place?
• What is the availability of liquid capital to fund the estimated tax liabilities at death?
The next step is analyzing the alternatives while bearing in mind the goals and objectives that were determined in the first step. While analyzing the alternatives, debt funding, tax liabilities, estate equalization and other estate costs should be taken into account.
Some funding alternatives that may be considered include using other estate assets, borrowing money at the time funds are required, investing in a sinking fund to accumulate the amount required at a future date or purchasing a life insurance policy to provide funding at a future date.