Case Study: Mapping an Exit Strategy
Dave spent most of his adult life building a profitable medical device company. But with his 60th birthday approaching, he wanted to explore wealth preservation strategies that would shore up his retirement and give his employees a more meaningful way to share in the company’s success.
With the assistance of our team, Dave and his attorney can create an employee stock ownership plan (ESOP), awarding the employees a certain percent ownership stake in the company. Then we can use the proceeds from the sale to purchase a well-diversified portfolio of U.S. stocks and bonds that fit the IRS’s definition of “qualified replacement properties.” Under this structure, Dave is not required to pay capital gains tax on the proceeds of his sale as long as he retains these securities.
This approach could reward Dave’s employees for their contributions and dedication, and potentially incentivize employees by tying their own financial success more directly to the company’s performance. It would also provide Dave with a highly tax-efficient way to liquidate his own shares. The goal with this strategy is affording Dave and his wife the cash flow they need to maintain their lifestyle, set up college savings accounts for their two grandchildren and look forward to a comfortable retirement.
This case study is a hypothetical demonstration of our planning process and is for illustrative purposes only. It is not a real portrayal of a client scenario. It is not intended to infer any particular client outcome. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.