How will tax issues be handled?
A key concern for retiring founders is how to reduce the concentration of their wealth in an asset no longer under their day-to-day control without incurring capital gains taxes. Selling shares to an Employee Stock Ownership Plan (ESOP) can be an excellent means of permitting the owner to roll over the sale proceeds into a diversified portfolio of domestic stocks and corporate bonds. “We find that by carefully constructing a portfolio with low turnover, capital gains can be minimized, deferred and even avoided altogether if the replacement securities are held until death,” says Muriel Irwin Nichols, Vice President of State Street Bank and Trust Company. “Combined with aggressive gifting to heirs, substantial income and estate tax savings can be realized.” There are other options if all parties to the sale are related family members. A private annuity may provide some tax advantages. When the parent sells the business to the children, the children agree to provide the parents an income
