In concluding the Business Succession plan using a Wait and See approach, let’s review some disadvantages.
Perhaps the biggest drawback comes from a stipulation in the Wait and See agreement that requires periodic updates to the plan. Such updates are usually required in the plan and if the update is not met, serious repercussions could occur. For example, if your agreement calls for a revaluation of your business and it’s not performed, the IRS at some point could come in and value your business at a much higher value than you would. If not updated, this could cause you to pay higher taxes as a result of a higher value placed on the business. It’s ALWAYS a good idea of keep revaluing your business.
I might also point out that I provide a complimentary business valuation. In addition, if you only want the forms to input key data, I can also provide that.
Secondly, and this is an equally important negative in the Wait and See program, is the idea that some restrictions could be placed in the Wait and See plan. Such restrictions in your BUSINESS plan could adversely affect your PERSONAL Estate plan. For instance, you could be thinking about retirement. The thought of gifting part or all of your business interests to your children may come into consideration. However, there may be a restriction in your agreement to limit any such such Gifting. This could limit your options.
Furthermore, restrictions of this nature could limit your access to outside credit. Thus, it’s always a good idea to try to plan for different contingencies.
There is a concept in Business and Estate Planning thats called TRANSFER FOR VALUE. What this concept means is that when a buy-sell plan is initiated among family members, a TAXABLE dividend could result. This is another factor that warrants attention. It can be more detailed. Consequently, if interested, please contact me for a more in-depth explanation.
Lastly, a Buy-Sell Wait and See plan could bind the owners into a particular triggering event. As such, it is not generally a good idea to use this plan if a binding agreement is used.
That concludes our discussion of the third Business Succession plan, The Wait and See Buy-Sell. Next we will introduce a plan for the Sole Proprietor.