Verit Advisors’ view is that, even if a founder/owner/CEO of a middle market company doesn’t anticipate a liquidity event within the next decade, the matter of sophisticated estate planning is nonetheless crucial and urgent.

Owners very likely won’t realize maximum after-tax value for the company, even if they receive a superior price in a sale, if they haven’t set in place, years earlier, safeguards against very high taxation of estates. Verit’s rule of thumb: 1.) an expert investment banker, by identifying the right acquirer and carefully structuring a transaction, can perhaps achieve a 25% increase over mean values; 2.) a good estate plan can add more than 50% to economic value – and alignment with personal goals. The best transactions do both.

Values of operating companies have been escalating rapidly, and that adds urgency to the need to plan.

To recap (quoting David Allen, a partner specializing in estate planning for high-net-worth individuals at Katten Muchin Rosenman LLP in Chicago): an individual can leave to heirs $5.43 million (a married couple $10.86 million) without triggering the federal estate tax; the limit is reduced by lifetime taxable gifts. Over those levels, a federal tax of up to 40% applies. There is further tax in 19 states and the District of Columbia, some as high as 20%. Thus, a failure to plan can result in so significant a tax bill that heirs are forced to sell a company they’d rather continue to own and operate.

All estate-planning strategies work better when you get started earlier. For instance, let’s say you’re the founder and owner of a fast-growing company currently valued at $20 million. You can gift a large ownership position in that company to your children, in non-voting shares, today and the future growth in the stock’s value won’t be subject to estate taxes. Non-voting shares can help you personally retain effective control of the business; and, under current law, they’re often valued lower than voting shares so the tax basis of the gift could be lower. If you wait, and the value of your company increases to $40 million, you’ll be able to pass along a far smaller stake without incurring estate taxes.


Or perhaps you own a more mature business, with significant cash flow. You can sell a portion of your company to a trust, for the benefit of your children, and the earnings of your company can effectively be used to service the debt taken on to buy the stake. This strategy provides the owner partial liquidity and can help reduce ultimate tax liability.

These are but two of many potential estate planning strategies. In all instances, however, timing is crucial. Putting your estate plan into place helps put you in control of your company’s future. That allows you to make decisions about liquidity events from a position of strength, not weakness.

As always, it is Verit’s vision to bring a fresh approach and customized solutions to advise private business owners on ownership transition.