An Integrated Estate and Exit Plan with an ESOP Foundation – A Case Study

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By: George G. Cassiere, ASA, CFA and Brian A. Eagle, J.D.

In the January 2011 WealthCounsel Quarterly, Volume 5, Number 1, we introduced the concept of using an Employee Stock Ownership Plan, “ESOP” to make an estate and business succession plans more robust for families that own medium to large businesses and want to transfer control to family members. We put forth the premise in that paper, that in the vast majority of cases where planners learn that a business owner client wants to transfer control of a business to family members, the planner will not present a design that includes an ESOP. We then stated that an ESOP in such a case might be worthy of consideration for many reasons including but not limited to:

  • Enhanced liquidity and income for the elder generation
  • More balanced and larger estate to be divided amongst beneficiaries, those in and those not in the business
  • Equity based compensation for employees, potentially enhancing the bonds between employees and the next generation of management
  • Allowing the new generation of managers to have better cash flow to run the business while paying off acquisition debt, leaving the company in a healthier situation
  • We reiterate that using an ESOP in an inter-generational control transfer plan is not going to be an appropriate instrument many times. However, in some cases it could be very beneficial and should be considered.

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