36
ACT
DECEMBER2014
INDUSTRY FOCUS
FINANCE
withinninemonths after thedateof death
of the second spouse. In theMayweather
case, RayandRachel have a significant
estate, but it ismostly illiquid.Howwill
the executor raisemillionsof dollars
withinninemonths? Their “solution”
as it is forother closelyheld family
businesses is to liquidatehardassets
(i.e.MayweatherCrane&Rigging, land
holdings, etc.). Liquidating is the last thing
RayMayweatherwould everwant todo.
He andhis familyhaveworked toohard
tobuild thebusinessnot to seeRay’s and
Rachel’s sons continue its success. If the
Mayweathersdon’t liquidate, however,
how else is the family comingupwith the
large amount of cash topay the IRS? The
company shouldqualify for aSection6166
program (IRS14-year installment plan),
asRay’s closelyheld stockmakesupmore
than the requiredminimumof 35percent
of the total of his andRachel’s estate. The
problemwithSection6166? Other than
MayweatherCrane&Riggingbeinga
businesspartnerwith the IRS for 14years,
evenwithnominal interest rates the first
four yearsof the14-yearplan,whenall is
saidanddone, theMayweather estatemay
pay two to three times (throughprincipal
and interest) of theoriginal taxbill.
Although, there aremany taxplanning
strategies available,whena taxbill
becomesdue theoptions topay thebill
are few. If an estate is liquid, there is the
optionof paying cash from the estate.
Thiswill take careof theobligation, but is
obviously expensive as a family ispaying
100 centson thedollar and losing the
cashand future appreciationof the cash
forever. Secondly, if an estatequalifies, the
executor canborrowmoney. This route
is evenmore expensive then self funding
the tax, as the loanamount and interest
must bepaid. Thirdly, is theoption the
Mayweathersdon’twant to entertain–
sellingMayweatherCrane&Rigging to
raise capital topay their taxbill. Finally,
life insurance, if acquiredand structured
properly, can save theMayweathers
millionsof dollars compared to theother
methodsof payments. Bypositively
leveragingpremiumdollars intoa tax-
freedeathbenefit, theMayweatherswill:
take careof their taxbill immediately,
savemillionsof dollars in theprocess
and succeed in their goal of keeping
MayweatherCrane&Rigging in the
family.
ISSUENUMBER3
:
If the taxbill ispaid
andNathanandAdamnow equallyown
MayweatherCrane&Rigging,what
happens if another company lures away
the threekeypeople? Overnight, the
company canbecome a significantly
different company–andnot for the
better. In this instance, “goldenhandcuff”
programs shouldbe implemented to retain
thesevaluable employees. The “golden
handcuff”wouldbe anasset to the
companyand the three employeeswould
have anattractive retirement program
should they staywith the companyuntil
retirement.Manybusinessowners are
under the impression that theonlyway
to retainkey executives isbygivingaway
ownership interests in the company.
This isnot the case asproperlydesigned
deferred compensationprograms;many
timeswill provide the same end result
of retaining the employees aswould the
transferof ownership.
There areother issues involved, of
course. The issues referenced in the article
are critical andbusinessowners should
notminimize their importance. It can
literallymean thedifferencebetweenyour
company survivingornot.
■
or contact Shelley Pennington: Tel: 0044 (0)1892786238 e-mail:
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