In 2015, I met Ron while on a fishing trip in Texas. He told me that he had developed a patent on a system for power plants across the US. Over many years, he had built a very successful business that he wanted to pass on to his kids. I worked with his attorney and CPA to design a plan for him to transition the business to his two kids, over a 5-year period. However, he was concerned about his youngest son, as he had not appeared very motivated up to this point, and seemed to be the irresponsible one of the group.
When Ron and I met with his children, and their spouses, on the plan for a transition, a new light seemed to emanate from Steve. He really took ownership. I met with Ron the other day, and the business has really blossomed since the transition. Now, Ron’s grandkids have graduated from college, and are working in the business as well. What a blessing to see something you developed, get passed down to several generations, and continue to grow.
So, how did we do it? First, I listened to what Ron wanted (which occurred during our second fishing trip, since we both love to fish). Then, we strategically designed a plan that would protect the business, and slowly transition it with several fail-safes in place, just in case we had to use them. Next, we had his attorney draft the legal documents, then got the CPA on board, after which we finally implemented it.
Ron wanted $200k of income each year, so we implemented several steps to make that happen. They also owned a building worth about $1 million in 2015, but is now worth about $2 million. The building is held in an LLC that Ron owns, and the company pays rent to Ron of $100k per
year. In the end, the building will pass to the kids, with a step-up in cost basis, under the current tax laws. Therefore, if current tax laws hold, the kids will inherit a $2 million building, with no taxes owed upon the parent’s death.
Finally, Ron is a really good person, and felt very blessed over the years. He wanted to share some of the blessings he had received with several charities. Therefore, we also developed a Charitable Remainder Trust, that pays Ron and Sherry an income stream of $50k per year for life, and around $1 million of his estate goes to the charities he chose, tax-free when it is all completed.
I love working with families to design very structured, tax-efficient, low risk transition strategies. I had a former client who owned an oil company. He has since passed, but he said it best, “God, Family and Charity.” Governments can pass laws to take money from business owners, charities cannot. He was very wise, and made sure he took advantage of all the tax laws that allowed his business to donate to charities. He wanted to make the world a better place.