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Michael, the owner of a closely held chemical company, is ready to retire and is preparing to turn over ownership of his business to his three children.
Like many business owners in this situation, Michael wants to preserve the integrity and reputation of his business after he retires. However, he is concerned about treating each child equally and doing what is right for the business.
His eldest child, Kristin, is highly involved in the business and has the leadership skills and business savvy to succeed him. Dylan, his second child, is married, lives in another state and works in a completely different field. Suzanne, the youngest, works for the company but isn’t inclined to participate in the management of the business.
How will Michael fairly divide the business’s value among the children, given their varying degrees of involvement?
To help ease Michael’s worries, a PNC Wealth Strategist worked with Michael’s attorney to formulate a proposed plan to pass controlling interest in the business to his eldest child, Kristin. This would be accomplished by issuing her voting stock in the company, while giving Suzanne non-voting stock.
Since Michael’s outside assets are not sufficient to allow for an equalization of his personal assets among the three children, the PNC Wealth Strategist also recommended a life insurance policy on Michael’s life. The policy would be purchased and owned by an Irrevocable Life Insurance Trust (ILIT). It could provide both liquidity to the estate and cash to Michael’s son, Dylan, in an amount equal to the value of the business interests passing to Kristin and Suzanne. It could also provide cash to equalize the gift to Suzanne, if necessary.
This solution helped Michael achieve his goal of retaining control of the business within the family, while equalizing gifts among all three children.
As a client of PNC Wealth Management®, you’ll have access to an experienced PNC Wealth Strategist who can help identify and articulate financial, tax, estate planning, insurance and philanthropic issues. They will assist you in identifying your financial goals and create strategies to keep you on track.
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This story represents a hypothetical scenario and is intended for illustrative purposes; the person described is fictional and not an actual client, but the scenario is intended to reflect a typical and/or previously experienced situation. Actual client experiences and outcomes may vary and future performance or success is not guaranteed.
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