March 21, 2014
Whether you’re a business owner considering going public or selling your business, or the sponsor of a private equity or hedge fund, issues like hiring the right investment banker and finding the right buyer or investors might be top of mind. But before you proceed, consider one or more wealth transfer strategies.
By engaging in certain wealth transfer strategies,you may be able to transfer your business in a moretax-efficient way and achieve your unique succession planning goals,” says Joel Yudenfreund, Wealth Management Strategist for The Private Client Reserve. Coordinate with your financial team and your tax and legal advisors as far as possible inadvance of a sale, as some of the more advanced
strategies have a higher chance of success if you implement them well before the liquidity event.
- By transferring part or all of your business to your beneficiaries or to trusts for their benefit before the IPO/sale, the transfer will be calculated at the pre-IPO/pre-sale value. Any post-IPO/post-sale increase in value will be out of your taxable estate.
- Founders of a hedge fund or private equity fund often receive carried interests upon creation of the fund. “Carried interests are generally where hedge fund and private equity fund founders make most of their money. Carried interests have received a lot of press because of their preferential tax treatment,” says Yudenfreund. For carried interests transferred at inception, the transfer will be calculated at the inception value and any increase in value will be out of the taxable estate.
- If the interests you transfer represent a minority interest or are not marketable, you may be able to obtain minority and lack of marketability discounts, which might lower the value of the interests for transfer tax purposes.
Here are three wealth transfer strategies you might consider.