Succession Planning: Ensuring Continuity for Your Business
and Security for Your Family
A Case Study

Dave was the founder and sole owner of a company he had grown to $20 million in annual sales. In each of the past three years, the company had posted net profits of $4 to $5 million. It enjoyed strong cash flow and had no debt. Two long-standing client relationships were responsible for most of the sales and profits. Dave had groomed key employees to manage these relationships, and to mitigate the risk that the company would lose the accounts when Dave stepped away.

Dave was 75 years old and in good health. He had entertained offers to sell the business in the previous year, but decided not to complete the transaction. His daughter and son, each in their mid-forties, had worked in the company at mid-level positions when they were younger, but were not currently active in the business. The company's senior production manager and senior finance and administration officer each had been with the company for ten years. Both managers were in their forties, and had contributed significantly to the company's success.

Needs and Goals
Dave needed to integrate the plans for his business with his estate and retirement plans. Prior to the estate tax law change in 2001, he had established two trusts: one for his second wife and one to benefit his daughter and son. The second trust would hold the company stock upon Dave's death. Dave's two children and an out-of-state trust company were the trustees, yet none of them had the requisite overall management skill or experience to run Dave's company.

Discussions with Washington Trust helped Dave reach the following conclusions:

• He did not want to sell his company, even though cashing out would simplify the funding of his retirement
• He wanted his company to continue as his legacy
• His children had no true desire to become contributing members of a management team upon his absence from the company

Wealth Management Solutions
Washington Trust contributed planning ideas to meet Dave's objectives, and worked closely with Dave, his CPA, and his attorney to put solutions in place, including the following:

• Dave committed to writing his plans for the continuation of his business in the event of his death or disability. All parties involved - Dave, his wife, his children and his key employees - understood the necessity (and financial benefit) of a smooth management transition upon Dave's death or disability. The written Business Continuation Plan provided the details for accomplishing the transition.
• Dave's Business Continuation Plan called for the retention of the company's key managers, and identified their roles in his absence. The plan also called for the creation of a Stock Appreciation Rights program that would reward the key managers for future increases in the value of the business. These measures served to relieve uncertainty about the future and increase the likelihood that these important employees would remain with the company.
• A Grantor Retained Annuity Trust met several of Dave's primary goals. He was able to transfer equitable ownership of his business interests to his son and daughter at a reduced gift tax value. Using the irrevocable trust ensured that future appreciation of the company's value would escape estate taxation. The trust would also provide Dave with a stream of annuity payments for ten years. When the terms of the trust ended, the trust property would then pass to his children and to his alma mater and another charitable beneficiary.
• Dave's wife was made the beneficiary of an Irrevocable Life Insurance Trust that would provide for her needs should Dave predecease her.

When you envision your company in the future, what do you see? What would you like to see? Washington Trust can help you develop a plan that meets your desires for your business, your family, and your key associates.

To arrange an appointment at any of our offices or your home or business, please call 800-582-1076 or contact us.