Case #3 · A New Jersey couple, both 65
Company Exit Strategy
Retiring from a $5 million family business.
The situation
The couple started a children's clothing company 30 years ago. Two of their four children work in the business.
The company is worth about $5 million, is very profitable, and holds about $800,000 in reserves, well above the $250,000 accumulated earnings tax threshold.
The goals
- Retire and exit the business
- Reach a $2.5 million retirement target
The strategy: Recapitalization, a charitable remainder trust and annual annuity funding
- Recapitalize the company into 1,000 voting shares and 20,000 non-voting shares.
- Create a two-life charitable remainder trust that pays the couple 6% for their lifetimes.
- Combine the $800,000 of liquid assets with five years of accumulated profits to meet the $2.5 million target.
- Each year, an appraisal sets the number of shares equal to a $500,000 contribution to an equity index annuity.
The results
| Retirement target | $2.5 million, met from reserves and five years of profits |
|---|---|
| Lifetime income | 6% charitable remainder trust payout for both spouses |
| Annual funding | $500,000 a year into an equity index annuity |
Figures are illustrative and based on the tax rules in effect when the case was prepared. Results vary.
Could a strategy like this work for you?
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