It has long been said that the only things certain in life are death and taxes. While most Americans pay any number of local, state and federal taxes while living, depending upon the extent of one’s property and the estate planning techniques used, additional taxes may be owed at death. According to the IRS website, “The Estate Tax is a tax on your right to transfer property at your death.” While the federal estate tax, therefore, has an impact on estate planning, the extent of that impact is currently in a state of flux. While death remains a certainty that all will face, the amount of federal estate tax is not.

In 2001, the Economic Growth and Tax Relief Act of 2001 (the “2001 Act”) was signed into law, significantly changing key provisions of the Internal Revenue Code dealing with the federal estate tax. Changes included an incremental increase in the estate tax unified credit exclusion from the pre-2001 amount of $650,000.00 per person, to $3.5 million per person in 2009, with no federal estate tax at all in 2010. In addition, the top estate tax rate declined from 55% to 45%. However, the 2001 Act contains a sunset provision and is set to expire on December 31, 2010. At that time the federal estate tax exclusion is scheduled to revert to $1 million per person and the maximum tax rate of 55% will be restored.

At 2009 rates, only inheritances above $3.5 million for an individual and $7 million per married couple were subject to the federal estate tax, at a tax rate of 45%. While it was estimated that only 1% of all inheritances would exceed those thresholds (encompassing an estimated 6,000 estates), Congress expected the federal estate tax to generate upwards of $25 billion in taxes in 2009.

Although there is no federal estate tax in 2010, the 2001 Act replaces the federal estate tax with a 15% capital gains tax on property inherited in 2010. Prior to 2010, beneficiaries of appreciated assets received those assets at their fair market value at the time of the decedent’s death (“stepped-up basis.”) Under stepped-up basis rules, the difference in the value of the asset from the time it was acquired by the decedent (the decedent’s “basis”) and the value of the asset at the time of the decedent’s death (the “gain” or “appreciation”) was not taxed as capital gains to the beneficiaries. This total exclusion no longer applies in 2010. While the capital gains scenario for 2010 is complicated and has its own system of exemptions, experts agree that many who thought that the elimination of the federal estate tax in 2010 would amount to a windfall may be in for a surprise.

The new capital gains treatment in 2010 notwithstanding, it is uniformly acknowledged that Republicans and Democrats alike are not going to accept the total elimination of the federal estate tax in 2010. In fact, on December 3, 2009, the House passed the Permanent Estate Tax Relief for Families, Farmers and Small Business Act of 2009, making permanent the $3.5 million per person exclusion, the 45% top tax rate, and stepped-up basis rules. However, the Senate, while focused on healthcare reform in the closing weeks of 2009, did not address the federal estate tax. As a result, the 2001 Act remains controlling — at least for now. Some Democratic Senators have vowed to reconvene early in January in order to pass an act that will be retroactive to January 1. As of this writing, the only thing that is certain is uncertainty.

We at Wright Penning & Beamer will continue to monitor this situation and the impact of future federal legislation on the estate planning needs of our clients. Stay tuned.

Dan A. Penning

Important events require careful planning. For example, what happens to your assets, who will care for your children, will your business survive or will your children be able to protect a legacy asset such as a cottage or vacation property in the event of your incapacity or death all involve critical decisions. Planning “in time” does not necessarily mean that the planning is “on time.” Any ambulance driver will tell you that lying on a stretcher on your way to the hospital is not the time to begin working on your estate plan or business succession plan. On a number of occasions, the importance of timely planning has been dramatically presented to me. In each situation, clients with entirely different types of estates and needs had one thing in common, they waited to plan until it was almost too late. Sometimes the risk of delayed planning “on time” becomes “in time”.

Each of these examples involve critical decisions and require careful planning.

One such client was a mother of two minor children, a business owner and estranged from her husband who suffered from a substance abuse problem. In this article, I will give her the assumed name of Sarah. Sarah cared for her children on a full-time basis, was the sole means of financial support and was self-employed in her own business. Tragically, Sarah was diagnosed with cancer two years ago. She was losing a valiant battle with her illness and had been hospitalized on several occasions prior to the day we met at my office. A mutual friend suggested Sarah contact me to develop and establish an estate plan and business succession plan to protect Sarah, her children and to preserve her business that employed several people.

I first met Sarah on a Thursday morning. She came to my office in a wheelchair accompanied by her sister. This same sister was also caring for Sarah and her children during Sarah’s illness.

After listening to Sarah’s explanation of her situation, I recommended to Sarah that she establish an estate plan to protect Sarah’s assets, provide for the appointment of her sister as Sarah’s children’s legal guardian and adopt a succession plan for her business to give a key employee the chance to purchase the business in the event of Sarah’s death. This planning would insure that Sarah’s assets would not be subject to a claim by her estranged, addicted husband, and that the assets be managed and support her children so that their lives, as much as possible in her absence, would remain stable and financially supported into the future. The business succession plan, notably, provided additional proceeds to be paid over time to support Sarah’s children, but also protected the jobs of her employees who relied on Sarah’s business to support their families.

I copied and collected all the information I needed from Sarah to draft her estate and business plan documents. I advised Sarah that although the process of completing these plans typically can take weeks or even months, given her declining health, I would draft her documents right away. I sked if she could return the following day to review and sign her plans. Sarah responded that she might not live to sign the planning documents the next day. Based on my observations of Sarah during the initial part of our meeting, I had no reason to doubt that possibility.

Together with my staff, I proceeded to prepare her estate and business succession plans for her signature that day. We also coordinated with her financial advisor the transfer of assets into a Trust created by Sarah for her children’s benefit. It was quite an emotional day. My staff and I raced against each precious moment that passed to consolidate Sarah’s planning process into one day. Sadly, Sarah died the next day. Fortunately, Sarah’s plan continues to govern and support her children and business as well.

During the span of my career, I’ve drafted estate and business plans solving various issues for clients to avoid significant problems. I have reviewed and obtained signatures in critical care units of hospitals, nursing home rooms and literally, in one case, we obtained a client’s signature on his estate planning documents while walking beside his hospital gurney as he was being wheeled to the operating room for emergency heart surgery. While I have many success stories for people who planned “in time”, there are extraordinary risks involved in not planning “on time”.

Dan A. Penning
231.271.4500

As we quickly approach the end of the year, you may want to consider the following information that could impact the amount of income tax you pay for the year 2009.

Home Energy Tax Credits

The American Recovery and Reinvestment Act (Recovery Act) enacted earlier this year expanded to home energy tax credits which are the Non-Business Energy Property Credit and the Residential Energy Efficient Property Credit.

The Non-Business Energy Property Credit. The Non-Business Energy Property Credit equals 30% of what a homeowner spends on eligible energy saving improvements, up to a maximum tax credit of $1,500.00 for the combined 2009 and 2010 tax years. Certain high efficiency heating and air conditioning systems, water heaters and stoves that burn biofuel along with labor costs for installation of these items all qualify as energy saving improvements and qualify for the credit. In addition, the cost of energy efficient windows and skylights, energy efficient doors, qualifying insulation in certain roofs also qualify for the credit.

By spending as much as $5,000.00 before the end of the year on eligible energy saving improvements, a homeowner can save as much as $1,500.00 on his/her 2009 Federal Income Tax Return. Due to the limits placed on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings may vary. These tax savings are on the top of any energy savings that may result.

The Residential Energy Efficient Property Credit. Homeowners who are interested in “going green” should also check out a second tax credit designed to spur investment in alternative energy equipment. The Residential Energy Efficient Property Credit equals 30% of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property. In addition, all labor costs are generally included when calculating this credit. Finally, no cap exists on the amount of credit available except in the case of fuel cell property.

Eligible homeowners can claim both of these credits when they file their 2009 Federal Income Tax Return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Efficient Property Credit to figure and claim these credits. A draft version is available now on irs.gov.

First Time Homebuyer Credit

If you are in the market for a new home, you may still be able to claim the First Time Homebuyer Credit. Congress recently passed the worker, home ownership and business assistance act of 2009 extending the First Time Homebuyer Credit and expanding who qualifies.

Here are the top ten things the IRS wants you to know about the expanded credit and the qualifications you must meet in order to qualify for it:

1. You must buy, or enter into a binding contract to buy a principal residence, on or before April 30, 2010.

2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.

3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.

4. A long time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you lived in the same principal residence for any 5 consecutive year period during the 8 year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.

5. The maximum credit for a long time resident is $6,500.00. However, married individuals filing separately are limited to $3,250.00.

6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available for taxpayers with modified adjusted gross incomes up to $125,000.00, or $225,000.00 for joint filers.

7. The IRS will issue a December, 2009 revision of Form 5405 to claim this credit. This December, 2009 form must be used for homes purchased after November 6, 2009, whether the credit is claimed for 2009 or 2010, and for all home purchases that are claimed on 2009 returns.

8. No credit is available if the purchase price of the home exceeds $800,000.00.

9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.

10. A dependent is not eligible to claim the credit. For more information about the Expanded First Time Homebuyer Credit, visit irs.gov/recovery.

Estate Planning Review

Generally speaking, your estate plan should be reviewed at least every 2 years to determine whether it needs to be changed or updated.

Additionally, if any of the following events occur, you will probably need to update your estate plan (i.e., your Living Trust, Will, health care documents, powers of attorney, life insurance coverage and post mortem letters).

* Divorce
* Marriage or remarriage
* Birth/adoption of a child
* Death of a spouse or child
* Sale of residence or purchase of new residence
* Retirement
* Enactment of new tax laws*

*The current law regarding estate tax is due to expire at the end of December 31, 2010. There are several legislative actions being taken to address the estate tax law. Stay tuned for further updates.

Here are some of the steps you may need to take:

1. Change the Successor Trustee of your Living Trust or Personal Representative of your Will.

2. Revise your plan to account for an increase in assets.

3. Reassess your life insurance needs.

4. Add or change a power of attorney.

5. Change legal documents to comply with state laws if you move to a different state.

6. Change Trust and Will instruments to account for changes in beneficiaries.

Pre-Retirement Checklist

In the event that you are considering retirement in the near future, there are various matters that you should consider. Here are some of the items that you should be aware of:

1. Health Insurance. Will you continue to be covered by your health insurance after retirement? If not, you will need to replace that coverage.

If you’ll be eligible for Medicare, you will want to start checking up on “Medigap” coverage. Before you retire, take care of any non-emergency medical, dental or optical needs if your employee plan coverage is broader then Medicare.

2. Other Insurance. Once you retire, you may need to replace employer provided life insurance by added life insurance. You should also consider purchasing long term health care insurance to cover the risk that you will need a lengthy nursing home stay in the future.

3. Social Security. Decide whether you want to take social security benefits if you are retiring before your full retirement age. You can get 80% of your benefits at age 62. For most people, taking social security benefits at their full retirement age makes the most financial sense. Be sure to discuss this with a financial adviser if you think you might need to take early benefits.

4. Company Plan Pay Out. It is important to plan well in advance how you will take the pay out from your pension plan or 401K plan. In most cases, it is advisable to transfer funds to an IRA in that you can transfer the funds “in kind” which maintains the character of the investments but yet allows you to name beneficiaries who could ultimately take advantage of the “stretch out rules” for income tax purposes. You should speak with your legal or financial adviser regarding these strategies.

5. Relocation. If you are planning on moving to another state, check out the various states to see what financial ramifications of living there will be. If you are relocating it may be a good idea to buy a new home before retirement.

Dan A. Penning

On December 3, 2009, the House of Representatives passed a bill introduced by Rep. Earl Pomeroy (D-ND) that addresses the federal estate tax: H.R. 4154 – “A bill to amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.” This straightforward bill, which has no cosponsors, provides for the following:

- Repeal of the 2010 repeal of the federal estate tax as provided in the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”).

- Maintaining the $3,500,000 federal estate tax exemption in 2010 and beyond.

- Freezing the maximum gift tax rate and estate tax rate at 45%.

Legislation enacted in 2001 gradually phases out the estate tax and ultimately repeals the tax in 2010. However, without congressional action to make the repeal permanent, the tax will revert in 2011 to the pre-2001 rates.

There are currently 16 bills that address estate tax reform in various ways circulating in the House of Representatives and three circulating in the Senate.

Under current law, a $5 million estate in 2009 would pay $675,000 in federal estate taxes, according to an analysis by Deloitte Tax. In 2010, no estate tax would be due, but the estate would be subject to a 15 percent capital gains tax. In 2011, the $5 million estate would pay $2,045,000 in estate taxes, according to the analysis. Under this House bill, $675,000 in estate taxes would be due, regardless of which year the estate is inherited.

With the current estate tax law expiring after 2010, H.R. 4154 provides certainty to help business owners plan for the estate tax and it maintains stepped-up basis. However, a $3.5 million exemption per person and a 45 percent rate do not provide adequate protection for many small businesses and farmers. In addition, the $3.5 million exemption is not indexed for inflation; protection from the estate tax will erode each year.

Often, it is not a pile of liquid assets (cash) that is taxed, but the land of a family farm, personal effects, or the capital and assets of a family-owned small business. Without the cash on hand to pay these taxes, heirs are forced to sell off businesses and small farms that have been in the family sometimes for generations.

Estate taxes fall disproportionately on small business owners and farmers because many of the assets are illiquid. For example, approximately 80 percent of farm assets are land based. Surviving family members may be forced to sell land, buildings, equipment, livestock, etc., to keep their businesses operating. In many cases, however, the assets that must be sold to pay the estate tax are the most important inputs needed to maintain the business.

Employing the proper estate planning techniques can minimize and sometimes eliminate the federal estate tax burden on your estate. The attorneys at Wright, Penning & Beamer have assisted numerous families and businesses in regards to protecting the assets they have worked hard to earn during their life, minimizing the impact of adverse tax consequences. The result is maintaining the value of these assets that our clients work hard to acquire.

Dan A. Penning

P.S. Check out the IRS’ 2010 Auto Mileage Deduction Rates Below:

The Internal Revenue Service has issued the 2010 optional standard mileage rates that are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning Jan. 1, 2010, the standard mileage rates are:

50 cents per mile for business purposes
16.5 cents per mile for medical or moving purposes
14 cents per mile in service of charitable organizations

The 2010 rates for business, medical and moving purposes are lower than last year’s, reflecting generally lower transportation costs compared to a year ago.

“…proper planning in most instances can navigate around any estate tax liability…”

There is a long history of debate regarding the federal estate tax. The implementation of the tax originally was to prevent the build-up of wealth that could lead to a creation of large estates and a permanent class of idle rich that would attempt to impose a monarchy.

While I am generally not in favor of raising taxes or the estate tax in general, there is a valid question as to whether the impact of the existence of the estate tax has any real negative impact on the majority of small business owners and family farms. Previously, President Bush tried to repeal the estate tax in his 2001 Tax Bill. President Bush succeeded to include provisions in the Bill that would phase the estate tax out of existence by the year 2010. The goal of the phase-out included in the Bill was to provide Congress with incentive to affirmatively decide the fate of the estate tax before its repeal in 2010. Now that President Obama has been elected, the fate of the estate tax has taken a different turn.

Under President Obama’s proposed new budget bill, there are provisions that freeze the estate tax at its 2009 level. The 2009 estate tax level provides for individuals with estates of up to $3.5 million to be exempt from estate tax which begins at a 45% tax rate, and married couples, with proper planning, can obtain an exemption of up to $7 million. In addition to using the aforementioned estate tax exemptions, there are additional estate planning tools which can, depending on the assets includable in an individual or married couple’s estate, provide for opportunities to possibly avoid estate tax on estates worth as much as $10 – 12 million or more.

The question then becomes is the estate tax a lion roaring down the path to chew up large pieces of individual’s estates, or is it a lamb in most instances avoidable and of no consequence?

According to a study by The Center on Budget Policy and Priorities, a Washington-based think tank, estate tax does not pose a significant problem to small business owners or individuals with family farms. That study claims that almost no small businesses or farm estates would owe any estate tax under the Obama budget bill. Based on the study’s analysis, fewer than .2% of all estates–2 of every 1000–will be subject to tax in 2009. Of the estates that are taxable, only about 1.3% are small business or farm estates. At the end of the day, the study purposes that only 3 out of every 100,000 people who die this year owning a small business or farm will be subject to any estate tax.

On the other side of the debate, the National Federation of Independent Business (NFIB) runs a separate organization, The Family Business Estate Tax Coalition, which primarily focuses its efforts to obtain a repeal of the estate tax. This organization argues that over the life of a business, the government collects income tax and other taxes. As a result, the group argues that the government has taken more than its fair share in taxes prior to an individual’s death. The organization further argues that the assets of a small business or family farm, including real estate, equipment, machinery and other business property can quickly add up to millions of dollars of value and yet only result in the production of a middle class income for the business or farm owner. While the individual, during their lifetime, may have paid for significant business assets, the group argues that the reality is that the individual only received a nominal return in income when compared to the overall value of the business assets.

The debate regarding estate tax will never cease as long as it is in effect. The lesson to be learned by an individual, small business owner or family farm owner is that proper planning in most instances can navigate around any estate tax liability.

Dan A. Penning
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Know Your Business, Grow Your Business, Protect Your Business

The article below (original source: London Free Press) contains information and recites various factors regarding family business succession planning, or lack thereof, in London and in other countries. Information reported in the article is not unique to London. In my practice, I represent several family-owned businesses that avoid succession planning for their businesses.

Succession planning for a family business is hard work. Often times, the family business owner’s avoidance of succession planning causes a strain on relationships and negatively impacts the productivity and profitably of the family-owned business.

The need for succession planning in family-owned businesses is important for several reasons. The succession plan can preserve relationships among family members, preserve family businesses contribution to the community through employment of people and support of various civic and charitable organizations, as well as providing the business community or general public with quality products. There are several resources that are available and should be consulted with respect to a family business succession plan. It is essential that the family business owner involve his or her accountant, attorney and financial adviser in the succession planning process. These professionals are necessary to make sure taxes are minimized, agreements are enforceable and will withstand scrutiny and that the business owner will ultimately be in a strong financial position to enjoy the rest of his or her life.

Dan A. Penning
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Read the entire article and comments from the London Free Press

Who’s taking over the business?
By HANK DANISZEWSKI, FREE PRESS BUSINESS REPORTER.

All across London, thousands of baby boomer business owners are approaching retirement and looking forward to handing their business over to the next generation.

But they’re not doing anything to prepare and that’s inviting trouble, say experts in family businesses.

Consultant John Geddes, a London native now based in Aurora, says many boomer business owners simply refuse to plan for the inevitable.

“They think their business will go on forever and they assume the kids or someone else will take over in a seamless way,” says Geddes, author of a new book, Succession and the Family Business: A Road Full of Potholes or Paved with Gold.

David Simpson, executive director of the Business Families Centre at the Richard Ivey School of Business, says it’s also a touchy topic for the next generation.

“You create a mythology around your business and burden your kids to carry it on . . . because grandpa founded this firm,” he said.

Simpson said some of his students are in business school to help out their family business and some are there to get away from the family business.

“But when I ask either side how many have told their parents about their plans, I get dead silence.”

Henry Vergeer, founder and owner of CEM Specialties in London, is way ahead of most boomers. Now 55, he has three sons who could potentially take over the business. He’s working on a succession plan in consultation with Geddes.

“I would like to see them carry on the legacy, but the interest has to be there,” said Vergeer, who has 15 employees.

Founded in 1992, CEM has developed a solid market installing and servicing pollution monitoring equipment for major clients such as Ontario Power Generation.

Vergeer said his oldest son, 27-year-old Michael, has worked at the company and is interested in taking over. But he’s serving with the Canadian Armed Forces and is committed for the next seven years.

Vergeer said he’s working to get his company into good shape for whoever takes over.

He wants to avoid potential conflicts.

“Family politics and emotions can get into the game and really cloud the issue,” he said.

Geddes said we should all care about the handover of family businesses because 80% of London’s 6,640 businesses are family-owned or managed. Since only 30% of family businesses survive from one generation to the next, he said, the jobs of about 26,000 people employed by those businesses are on the line.

Geddes said the question will soon become urgent because the average business owner is 58 and planning for succession can take years.

“This is really a baby boomer issue. The transition is going to happen whether they want it or not,” he said.

Geddes said handing down the business can provoke ugly family battles with children or between siblings.

“We often get called in after the family stops talking to each other.”

Some high-profile Canadian businesses have wrestled with the issue. The handover of the Canadian Tire and McCain frozen food empires both provoked bitter and public family battles.

Closer to home, the sons of Mac Cuddy clashed with their father and with each other over control of the London-based poultry empire.

Simpson said only about 10% of family businesses make it to the third generation and while that may seem low, it’s better than the survival rate for non-family businesses.

“How many businesses last 70 years? The oldest business in the world are almost all family-run,” he said.

Simpson said family-run businesses deserve support because they’re much more rooted in their communities. New Brunswick’s McCain family, despite their internal battles, are a good example, he said.

“There are no oranges growing in Saint John river valley. But it has the largest orange juice processing in North America because the McCain family lives there,” Simpson said.

The crucial question for family-owned businesses is whether there’s a child or family member willing and competent to take the business over. Unlike previous generations, boomers typically only have two or three children, lowering the odds one of them is willing to take over.

Geddes said it’s an issue loaded with emotional baggage.

“Blood is thicker than water and harder to see through. They may not realize their family member does not have the skills to manage.”

The children may think they’re entitled to the business and aren’t willing to pay for it and provide the retiring parents with a comfortable retirement.

“The children sometimes think the business is an ATM — it just finances their lifestyle.”

Geddes and Simpson both said it often makes more sense to sell a family business to a long-term employee or senior manager.

Simpson said it’s better for entrepreneurs to pass their skills on to their children and think in terms of a business family, rather than a family business.

He said it’s a good idea for the children of entrepreneurs to get a good business education and spend a few years working outside the family business.

They then have to decide whether to take over personal control of the business, turn it to professional managers or sell it outright.

Simpson said the retiring business owner also has to make a commitment to give up control.

He said one prominent London business family, who he declined to name, agreed the founder would not set foot in the main office after the son took over the business.

Geddes said the goal for his succession plans is to find an arrangement that works from a business and personal level.

“I am working to make sure they can still have Thanksgiving dinner together and it doesn’t destroy the family relationships and the business.”

Many family business owners confuse their ability and success in running their family businesses with the ability to effectively orchestrate the sale of the business to a third party. The excerpt below from an article in the current edition of Family Business Agenda is an excellent summary of common mistakes that are often times made with respect to selling family businesses.

7. Mistakes to avoid when selling your family business. In the current issue of Family Business Agenda, Dennis J. White of the law firm of McDermott Will & Emery LLP warns readers of ten common mistakes made by family business owners when they try to sell their companies. Here are five of them:

1. Failure to integrate estate and business planning. Without appropriate planning, effective control of the business can be spread among a disparate group of beneficiaries with very different levels of business acumen and varied objectives. Such arrangements often result in stalemate and disaster.
2. Failure to line up the family members. If the selling group appears to be in disarray, some potential buyers will not even spend the time to investigate the opportunity. One approach is to designate a single person as the selling group’s representative and negotiator.
3. Failure to assemble an experienced team. Family business leaders are often out of their depth when it comes to an M&A transaction. Moreover, they often avoid or delay engaging a team to help them maximize value.
4. Failure to prepare for due diligence. A buyer who is truly interested will deliver to the seller a lengthy and detailed due diligence questionnaire. All too often, inexperienced sellers are unprepared to complete these forms. Well-advised sellers anticipate the suitor’s questions by setting up data rooms, often electronic in nature, where all the information is waiting.
5. Failure to properly structure the deal. If planning is undertaken early enough, the sellers can structure the operating entity as an S corporation or an LLC and avoid corporate-level tax.

Know Your Business. Grow Your Business. Protect Your Business

Dan A. Penning
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California boasts the largest wine industry of any state in the country. California’s past success and bright future with respect to its wine industry is primarily the result of two factors. First, the wine growers in California implemented sustainable wine growing practices that meet current needs without compromising the livelihood and needs of future generations. Second, approximately 60% of California’s wineries are family owned and operated and have implemented family business succession planning to protect ongoing viability of the business.

A prime example of a family owned winery that adhered to both of the aforementioned elements that has led to a successful transition of involvement and ownership of family members into a fourth generation is the E&J Gallo Winery which is celebrating its 75th anniversary.

The mistake many family business owners make, no matter what type of business, is not designing and implementing a business succession plan. The predictable consequences of the failure to plan are fights over control between surviving family members and working capital being devoured by having to pay higher estate taxes. While the older generation business owner is alive, the relationships and potential or present problems between the next generation of business ownership is rarely so serious that they cannot be improved and, in some instances, resolved entirely. The process of succession planning may be difficult but the risk associated with the alternative of taking no action to plan or doing nothing carries the greatest possibility of risk. Doing nothing may feel good in the short term, but no succession plan is always a terrible succession plan in the long run.

The lawyers at Wright Penning & Beamer are skilled and experienced in advising family business owners how to develop a succession plan that ensures a continuation of the business for future generations to grow and prosper as a “family business”.

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Wine industry impacts economy

Wine grapes are grown in 46 of California’s 58 counties. Its 10 leading wine regions are Amador, Carneros, Livermore, Lodi, Mendocino, Monterey, Paso Robles, Napa, Santa Barbara and Sonoma. From these regions, more than 43 different varieties and blends are grown and cost from $10 to more than $150 per bottle.

Today, however, wine consumers want to know not only where wine is grown, but how it’s grown.

Although winegrowing terms such as organic and biodynamic have drawn consumer curiosity, most grapes are grown sustainably. “Simply put,” said Karen Ross, President of the California Association of Winegrape Growers (CAWG), “sustainability means that we grow and make wine in a way that meets the needs of the present without compromising the livelihood and needs of future generations.”

In 2002, based on a code of 232 best practices, covering every aspect of winemaking and winegrowing from ground to glass, the Wine Institute and CAWG created a Sustainable Winegrowing Program. Since then, thousands of growers and vintners have adopted socially and environmentally responsible practices. For more information on sustainable winegrowing, log on to sustainablewinegrowing.org.

DID YOU KNOW?

California is the fourth largest wine producer in the world, making more than 90 percent of the wines in the U.S. The following are other facts supplied by the Wine Institute:

-In the U.S., two out of every three bottles enjoyed are California wines.

-The majority of California’s 2,700 wineries and 4,600 grape growers are family-owned and operated.

-Nationwide, California’s wine industry generates 875,000 jobs.

-Overall, California’s wine industry economic impact exceeds $125.3 billion.

-In the U.S. last year, California’s wine industry generated $19 billion in retail sales.

WHERE MICHIGAN STANDS

With 56 commercial wineries (up from 17 in 13 years) producing more than 375,000 cases of wine annually, Michigan has successfully linked two growing industries: agriculture and tourism, under the moniker of agritourism.

Also, according to Michigan Wines official Web site, Michigan’s wine industry accounts for more than 5,000 jobs across the state for a payroll of more than $190 million and contributes $800 million to the state’s economy annually.

More than 1,500 acres are devoted to wine grapes, ranking Michigan eighth in the U.S. In the state, vineyard acreage has increased 25 percent in the last 10 years. Yet, that’s not nearly enough to satisfy growing demand, especially for riesling.

Help the economy – drink more Michigan and California wine!

Eleanor & Ray Heald are Contributing Editors for the internationally-respected Quarterly Review of Wines and Troy residents who write about wine for the Observer & Eccentric Newspapers. Contact them by e-mail at focusonwine@aol.com.

From an article which appeared in the Observer & Eccentric on November 6, 2008. Link to the online article.

Business Succession Planning

Lawyers specializing in business succession planning services

Business Succession Planning Services Offered: We help privately-owned businesses and the individuals who own them develop exit or succession strategies for the transfer of ownership to family members, to employees and to third parties.

The best indicator of our attorneys’ skills in transferring business ownership among family members is that we represent several businesses that have been successfully transferred to a second generation of ownership and six business clients who have successfully transferred ownership from a second generation to a third. Given the fact that fewer than 20% of businesses survive generational transfers, we offer the unique perspective and practical solutions that come from continued success in the field of business succession planning.

Benefiting from our business succession planning experience
If a sale to a third party is the best way to maximize the value of your business, our experience with hundreds of successful third-party transactions will be invaluable. Learn what Wright Penning & Beamer attorneys can offer you with their business succession planning services.

Wright Penning & Beamer is a participating sponsor of the Family Business Council of Southeastern Michigan and a member of the Family Firm Institute.