This client is a family owned $100 million revenue manufacturer seeking to transition the business between generations.

Engagement
Business Succession and Transition, Corporate Structure, Benefits Advisory

Case Study
This client was a manufacturing firm with more than $100m in revenue plus $40m in other assets in the estate.  The owner has four children; two sons and two daughters.  In this case, one son is the CEO and is the only child working in the business.  The owner's goal was to transfer the company to the son working in the business, but provide a fair and equal distribution of assets to the other siblings.  The owner held 100% of the stock.  TGG Capital worked with the existing estate attorney and took on the challenge by breaking down the effort into a series of complex steps summarized as follows:

Step 1: Work with the business attorney and owner to reclassify the stock into voting and non-voting shares.

Step 2: Brought in a third party valuation expert to then provide a comprehensive valuation of the company. The valuation expert was brought in because of his extensive experience, including testimony before the IRS on a number of these cases. The result of the valuation was to discount the owner's portion w/minority discount, which brought the value of the company down to $55m (If one assumes that a $100m revenue company might sell at about 1x revenue, it would equate to a $45m discount).

Step 3: Work with the attorney to establish a series of "laddered" GRATs, with the longest one being 10 years.

Step 4: Establish corresponding "laddered" term insurance in the case of premature death.

Step 5: Along with the efforts to transfer the business, also using a series of trusts (some existing, some newly created) and the previously made lifetime gifts, provide $10 million after tax for each of the other children held in trust for their own benefit, with the remainder of the estate going to charity.

The result was that TGG Capital effectively and legally transferred the Company ownership from one generation to the next, while reducing the cost of the estate transfer from approximately $56m in estate taxes to $3.2m in total 10-year legal, accounting, consulting, and insurance costs.

In this case, cost/tax reduction was a critical goal, but equally important was insuring the viability of the Company by allowing the son/CEO to retain control of the business.