for producer or broker/dealer use only. not for public distribution. strategies for business owners...

For Producer or Broker/Dealer Use Only. Not For Public Distribution.

Strategies for Business OwnersFor Producer or Broker/Dealer Use Only. Not For Public Distribution.

MetLife

L1111217738[exp1212]


A Preview• The Business Owner

Marketplace

• The Business Strategy Approach

• Family Business Dynamics

• Valuation

• Exit Planning

• Looking Forward

Please note: This document is designed to provide introductory information on the subject matter. MetLife does not provide tax and legal advice. Clients should consult their attorney and /or tax advisor before making financial investment or planning decisions.


Question: Why are We Discussing Business Owners?

Answer: they represent must of the wealth

Answer: They represent many of the

successful people in need of our services


Business Strategies are Larger than Exit PlanningBusiness Strategies are Larger than Exit Planning

• Consider all the business owner’s needs– Exit– Retirement, – Executive Benefit– Estate


What’s their Priority?• Do I have an Exit Plan?• How does my business support my Retirement Plan?• How do I align my company with my Estate plan?• How can I most effectively use my business to provide

executive benefits to recruit, retain, and reward talent.

Bottom Line:What’s Keeping Them Up at Night?


Competing Values

RELATIONSHIPS

LOYALTY

STABILITY

GOALS

COMPETENCE

GROWTH


Conflicting Values

RELATIONSHIPS

LOYALTY

STABILITY

GOALS

COMPETENCE

GROWTH


Estate Equalization• Multiple Children: Some in business,

some not

• Is equal…. equitable?

• What is the role of life insurance?


Spouse vs. Third Party• Does the Surviving Spouse Possess the Ability and/or

Desire to Run the Business?

• Will a Sale to a Third Party Maximize the Value Obtained From the Business?

• Is There a Ready, Willing, and Able Buyer?


Leadership Transition in Family Business

• Cold Turkey– “Dying with Boots on”– May cause chaos

• Delay, Delay– Successors may get frustrated and leave

• Gradual Progression– Identifying successors early on– Slowly handing over the reigns


Business Valuation Issues

• How does the IRS define “Fair Market Value”?

• Revenue Ruling 59-60 and its progeny

• Chapter 14-Special Valuation Rules


Business Valuation Issues

TYPES

• Book Value

• Discounted Future Earnings

• Capitalization of Earnings

OTHER VALUE SOURCES

• Assets– Tangible and intangible– Employees

• Brand/Goodwill

It is important to confer with your attorney as well as a qualified appraiser regarding the valuation methodology appropriate for a particular business. All appraisals should be conducted by a qualified appraiser.


Business Owner Exit Planning


• An Exit Strategy is a Lifetime Plan• Focuses Upon “Who” “When”,

“How” and “How Much”• Developed By Your Team Of Tax,

Legal And Financial Advisors• Should Be Reviewed Periodically

Exit Strategy Fundamentals


The Client Profile• “Affluent” business owners

• Owners who may need a business continuation agreement updated/created. Is it funded?

• Owners who have the following unanswered questions

1. When can I exit my business?

2. How much can I sell it for?

3. Who can I transfer my business to?

4. What is the best way to sale the business?

5. How can I minimize taxes?


Options

• Shut down the business

• Sell to outsiders

• Sell to insiders


Exit Roadmap

Business

DeathDisabilityDepartur

eDivorce

Shut Down

SellTo Outsiders Sell To Insiders


Shut Down

Business

DeathDisability

Departure Divorce

Shut Down


Business CeasesCommon for Sole Prop

•Asset Sale


Sale to Outsiders

Business

DeathDisabilityDeparture Divorce

Shut Down


•Asset sale•Stock sale•Stock swap

Cash or stock lump sumInstallmentsEarn outNon-competeConsulting arrangementKey employee retention


Sale to Outsiders

• Could be large company or a competitor– Sale of assets– Sale of stock

• Purchase price paid in cash or stock– Lump-sum or installments– May include earnout provisions

• Usually non-compete clause

• May be consulting arrangement


Issues for Outsider Sale

• Type of sale is issue from income tax standpoint– Asset better for buyer– Stock better for seller

• Retention of key employees is crucial– Stay bonus– SERP


Sale to Insiders

Business

DeathDisability

Departure Divorce

Shut Down

SellTo Outsiders

Sell To Insiders

Employees

Family

•Keep business in family•Sell business to employees


Sale to Employees

•Lifetime sale to key employees•One way buy/sell•ESOP •Stock bonus & stock redemption

Self-funding buyoutRisk of defaultIdentifying potential employee purchasers


Sale to Employees

• One Way Buy/Sell -– Identified key employees purchase business from

owner– Cash & installments– Concerns about receiving payments

• Stock Bonus & Redemption– Owner bonuses stock to key employees– Company redeems owner shares


Keep in Family

• Two Options:– Sale– Gift

• Sale can be at retirement, disability, or death

• Need to identify successors

• Family equality becomes an issue


Transfer to Family

Gift

Sell

•Installment sale•Lump sum•Family Buy/sell•IDIT sale•SCIN/Private Annuity

•Lifetime gifts•Bequests•GRAT

Family attributionChapter 14 rulesFair market value

Transfer taxesEstate liquidityValuationRetained interests


Sale

• Will company stay in business and be able to make installments to owner?

• Possible income tax issues with family redemption

• Gift tax issues if sale is not for fair market value

• Family buy/sell

• Gift/sale strategies (IDIT, SCIN)


Gifting the Business

• Annual gifts– $13,000 per person per year (in 2011-2012)

• Lifetime gift exemption– $1,000,000

• Leveraged gifts– IDIT, GRAT, SCIN

• Valuation discounts *– Lack of control– Lack of marketability

* Use of discounts, though legitimate where appropriate, is often the subject of IRS scrutiny. It is important to confer with your independent tax and legal advisors regarding the use of this technique.


Setting the Tone

Why is now the Ideal Time to

Discuss Business Strategies?


Preview…Looking Forward• Exit Strategies Workshop• Nonqualified Benefits• ESOP’s• Buy-Sell Strategies-Tactics and Issues• Life Insurance in Qualified Plans• Business Valuation• COLI Products


Important Information

• The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Act”) impacts the federal gift, estate and generation skipping transfer tax (together referred to as “transfer tax”) through 2012. Among other changes, the Act temporarily establishes maximum exemption amounts of $5,000,000 per person for transfer tax purposes, establishes a maximum transfer tax rate of 35% and provides for portability of the estate tax exemption between spouses. These changes, however, are only in effect through December 31, 2012. Unless Congress enacts new legislation, on January 1, 2013 the transfer tax laws will revert back to the laws (e.g. exemption amounts of $1,000,000 and generally 55% maximum tax rates) that were in effect in 2001. At this time, it is not clear what steps, if any, Congress will take to revise the transfer tax laws for years beyond 2012. Future changes in transfer tax exemption amounts and transfer tax rates may impact the appropriateness of any transfer tax planning strategy or product sale. Clients need to understand that tax law is always subject to interpretation and legislative change. MetLife and its affiliates do not provide tax advice and therefore clients must speak with their qualified legal and tax counsel regarding their current estate plan and what planning options are available and appropriate.


Important Information

• Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency • Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is notintended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance

products. You should seek advice based on your particular circumstances from an independent tax advisor.MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general

information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Taxresults and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with

and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife.The policy prospectus contains information about the policies features, risks, charges and expenses. The investment objectives, risks and

policies of the investment options, as well as other information about the investment options, are described in their respectiveprospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product availability and

features may vary by state.MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no

guarantee that any of the variable investment options in this product will meet its stated goals or objectives. The cash value is subject to marketfluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are based on the claims paying ability and

financial strength of the issuing insurance company. Please contact your financial professional for complete details.Life insurance products are issued by MetLife Investors USA Insurance Company, Metropolitan Life Insurance Company

Life insurance products are issued by MetLife Investors USA Insurance Company, Irvine, CA, 92614. Metropolitan Life Insurance Company, New York, NY, 10166 and in New York only by First MetLife Investors Insurance Company, New York, NY, 10166. All guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution

Company, Irvine, CA. All are MetLife companies. November 2011

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