Discover the key tax benefits, industry insights, and expert tips that will equip you with the knowledge and confidence to navigate your ESOP journey. Don’t miss out on this valuable resource— download our Succession Planning Strategy Guide now.
Introduction
The aging of the baby boom generation (those born between 1946 and 1964) is creating a burgeoning opportunity for ownership succession and estate planning for Baby Boomer Business Owners (“BBBOs”).
ESOP Background
An ESOP is a qualified retirement plan like a profit-sharing plan, stock bonus plan, and a 401(k) plan, and must thus comply with § 401(a) of the Internal Revenue Code of 1986 (the “Code”).
How a Leveraged ESOP Works
In the typical leveraged ESOP used in ownership succession planning, the employer borrows money from an outside lender, such as a bank.
ESOP Tax Benefits
An ESOP provides tax benefits for the company (which may vary depending on its status as either a C corporation or an S corporation) and the selling shareholder.
Key ESOP Issues
A business owner who is considering an ESOP typically wants to address three key issues very early in the process: valuation, financing, and control.
ESOPs and Estate Planning
Implementing a leveraged ESOP transaction creates a number of gift, estate, and charitable planning opportunities.
ESOPs and Charitable Planning Opportunities
Suppose Owner has a favorite charity he would like to benefit as part of his ownership succession and estate plan.
Characteristics of ESOP Candidates
Financial characteristics of companies that are strong ESOP candidates include high levels of profitability and low levels of debt.
Conclusion
Many BBBOs have thought about ownership succession and estate planning for a number of years, and might have even discussed it with their professional advisors and management team.
