Three Things to Do Before You Sell Your Company

Structuring the sale of your business to preserve your assets and legacy.

Many entrepreneurs looking to sell their business are unaware of how many options they have in structuring that sale and the profound differences those different paths can make. A well-planned sale can save thousands-or even millions-of dollars in taxes and lay the foundation for lifelong security, comfort, and opportunity for yourself and your family. “Making the wrong choice could be one of the biggest regrets of your life,” says Andrew Ryan Hall, Vice President and Fiduciary Advisor with Whittier Trust Company of Nevada. “But with some foresight and planning, it’s possible to set a course for the best outcome.”

As part of the Reno office of the oldest multi-family office headquartered on the West Coast, Whittier Trust, Hall gives clients the advantage of working within Nevada tax and trust laws while having access to a multi-state fiduciary team and network of attorneys, tax experts, and other advisors. He offers three pieces of advice for West Coast business owners who are anticipating a major liquidity event.

Start Planning as Soon as Possible

If you are like many first-time sellers, a majority of your net worth may still be tied up in the business itself. You may not yet have a full team of advisors-tax experts, estate planners, and fiduciary partners-because your focus has rightly been on building and positioning the company for a successful sale. But in truth, the earlier you begin thinking about life after liquidity, the better equipped you will be to make decisions that minimize tax exposure and align your wealth with your long-term goals.

“It’s a chicken-and-egg question,” Hall says. “How do you surround yourself with the right people and resources before the ‘egg’ is in the picture? The answer is to begin educating yourself as early as possible so you have time to get referrals, do research, and have honest conversations with people you can trust to help guide your success. Failing to employ the best professionals ahead of time can be a costly mistake. There’s no undo button on certain decisions.”

Ideally, you’ll be able to plan as much as five years ahead of time, which would allow you to consider and compare solutions such as a C-Corp structure along with a qualified small business stock (QSBS) solution. But even if your timeline is more constricted, there are alternate solutions that can work to minimize your tax burden and optimize your net payout.

Consider All Options to Minimize the Tax Hit

Once you’ve sold your business, you could be paying a shockingly large tax bill depending on how you’ve structured the company and the sale. “If you’re in a state like California that has a higher capital gains tax, you could be paying up to a 13.3% premium on top of federal taxes,” Hall explains. “But there are solutions that give you a lot more bang for the buck, while allowing you to support your lifestyle and create a legacy for your family and maybe the broader community.”

• A charitable remainder trust gives you a steady cash flow while deferring the capital gains that would have been realized, allowing assets to grow and providing an opportunity to implement your charitable goals.
• A non-grantor trust has the benefit of mitigating state long-term capital gains taxes while taking care of designated family members or other beneficiaries.
• A family limited partnership can facilitate the transfer of assets and wealth between generations, potentially reducing gift and estate taxes, provided you have time to plan in advance.
• Setting up an irrevocable trust in Nevada could effectively avoid state capital gains tax on your sale because Nevada has no state or corporate income tax. We can coordinate with your attorney on implementing these types of estate strategies.

Define Your Personal Goals

We know that planning for a sale can be all-consuming. Even if you have a number of experts advising you, sometimes that advice results in an overwhelming confluence, or even conflict, of guidance. At Whittier Trust, we take a holistic approach, listen to your concerns and expectations, and help you take a step back to make sure you can confidently achieve your goals by crafting solutions that last generations.

“Taxes are only one slice of the pie,” says Hall. “We also want to know how you hope to use your assets and what impact you hope this sale will have on your legacy. We see the whole map and make sure that you’re getting to the right destination by coordinating proactively with all the different professionals needed. Together, we help create the best map for you, then keep you on track to accomplish that goal, using best practices to get the optimal outcome.”

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