Family Business Fall 2016

Massachusetts

FALL 2016

FAMILYBUSINESS

NEW ENGLAND FAMILY BUSINESS CONFERENCE Official magazine of the

Inside:

Outstanding Women of Family Business 2016

Portrait by renowned illustrator Joseph Adolphe.

RENOWNED INSIGHT | BUSINESS SUCCESSION

“The biggest challenge for your business today? Tomorrow.”

Donald P. DiCarlo Jr. M.A., J.D., LL.M. (Tax) National Director of Business Advisory Services, Senior Wealth Strategist Don helps business owners develop and implement successful business succession strategies. He forges relationships with clients while they are still actively engaged in managing the business, and offers key advice at each critical stage. He is part of a seasoned team of wealth advisory professionals who work seamlessly to provide the full spectrum of services required by clients. To learn more about our collaborative and creative approach to managing wealth, contact Mark Andersen at 617.457.2056 or mandersen@wilmingtontrust.com.

Transitioning ownership of your business will undoubtedly be one of the most significant events of your life. And one you may not be prepared to even think about right now. However, with careful planning at each stage, you’ll be ready for what’s ahead – and confident that you’ll preserve everything you’ve worked so hard to build.

Growing your business.

Your banker and insurance specialist will help determine which deposit, lending, cash management, and insurance solutions will best fuel the growth of your business.

You’ll also want to ensure your will and other estate planning documents are in order, and that you’re taking advantage of tax-minimization strategies.

Transitioning business capital to personal capital. As your business evolves, you may consider selling or transitioning to your son or daughter, or someone outside the family. We can help you explore exit strategies, secure the right buyer, and value your business.

We’ll also help you determine how and where to invest your wealth, and how to manage your liquidity and cash flow needs.

Managing and transferring personal wealth. This is when all your hard work pays off. You’ll begin to implement trust and planning strategies to transfer wealth to the next generation.

You may also have the freedom to donate resources to those organizations you find meaningful.

ONLY

30%

O F FA M I LY B U S I N E S S E S SURVIVE INTO THE S E C O N D G E N E R AT I O N Source: familybusinessinstitute.com

At Wilmington Trust, we can help create a plan for each stage of your business and your life. Founded by a family business leader more than a century ago, we have the experience to help guide you through times of growth and succession. Our approach focuses on both your business and personal financial needs, allowing us to make each transition in your journey a seamless one.

For more insight on how to successfully prepare for what’s next, view our capital transitions video series at wilmingtontrust.com/capitaltransitions.

F I D U C I A R Y S E R V I C E S | W E A LT H P L A N N I N G | I N V E S T M E N T M A N A G E M E N T | P R I VAT E B A N K I N G

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of your professional advisor should be sought.

Private Banking is the marketing name for a product and service offering.

Investments: • Are NOT FDIC-Insured • Have NO Bank Guarantee • May Lose Value Wilmington Trust is a registered service mark. Wilmington Trust Corporation is a wholly owned subsidiary of M&T Bank Corporation (M&T).

Investment management and fiduciary services are provided by Wilmington Trust Company, operating in Delaware only, and Wilmington Trust, N.A., a national bank. Loans, retail and business deposits, and other personal and business banking services and products are offered by M&T Bank, member FDIC. ©2016 Wilmington Trust Corporation and its affiliates. All rights reserved.

Massachusetts Family Business Official magazine of the

CONTENTS

8

NEW ENGLAND FAMILY BUSINESS CONFERENCE Family business owners gathered in Boston to swap stories of their paths to success, and celebrate the Outstanding Women of Family Business.

4

director’s corner

Summer A Valuable Time For Family – And Family-Owned Businesses

5

estate planning

Special Knowledge Needed For Family Business Owners

6

business profile

A.W. Chesterton Returns To Family Leadership

12 business continuity

8

10

It Doesn’t Have To Be Complicated

6

12

From the Board

Summer a Valuable Time for Family – and Family-Owned Businesses

By Brian Nagle and Jeffrey Davis

S

ummer celebrates the annual ritual of children spending more time with family. This time is vital to the successful transfer of values and principals from one generation to the next. It is an informal education of family ethics that is casually acquired over the course of summer vacations, the dinner table and working within the family business.

Imparting the values and principals of one generation upon the next lays an essential foundation. However, the challenge continues with the process of educating the next generation on dealing with the inevitable struggles within and external to the business. On June 7-8, the Family Business Association (FBA) and The Warren Group held the 2016 Annual New England.

Family Business Conference to further this educational effort. The conference offered family business owners an opportunity to meet face-to-face with other family business owners and managers to learn directly from their peers, hear from industry experts and consider a variety of best practices while networking among themselves.

Keynote speakers, educational breakout sessions and various panels of family business owners shared their knowledge to provide tangible solutions to common

operational and intrafamilial challenges faced by generations of families and their businesses. See page 8 for more.

For over 11 years, the FBA has been the leading statewide nonprofit at providing an ongoing forum for the continued success of family businesses. Although they are the cornerstone of our local and national economy, the challenges these businesses face are complex such as transitioning roles or the entire business from one generation to the next. The ability to understand how other businesses have embraced and navigated difficulties and attained their success provides the underpinnings for catalysts of change within an evolving family enterprise. The ability to

understand and proactively address these types of difficulties is as necessary to the business as adapting to a shifting economy to insure success.

As August fades into September, be sure to relax and spend time with your children and grandchildren while imparting upon them the values and work ethic of your family. While preparing for the fall, be sure to sign up on the FBA’s website, fbaedu. com, to receive updates on FBA’s seminars and other educational events.

■ BRIAN NAGLE IS MANAGING DIRECTOR AND PORTFOLIO MANAGER OF FIRST REPUBLIC INVESTMENT MANAGEMENT INC. AND A COFOUNDER OF THE FBA. JEFFREY S. DAVIS IS CEO OF MAGE LLC AND A COFOUNDER OF THE FBA.

Massachusetts

FAMILYBUSINESS

Official magazine of the Family Business Association. Inc.

Editorial | Advertising | Design A Family-Owned Business Since 1872

101 Huntington Ave., Suite 500 Boston, MA 02199 fbaedu.com

DIRECTORS Jeffrey S. Davis, Mage, LLC Al DeNapoli, Tarlow, Breed, Hart & Rodgers, P.C. Brian Nagle, First Republic Private Wealth Management

4

PRESIDENT Edward D. Tarlow, Tarlow, Breed, Hart & Rodgers, P.C.

VICE PRESIDENT Catherine Watson, Tarlow, Breed, Hart & Rodgers, P.C.

TREASURER Jeffery P. Foley, Gray, Gray & Gray, LLP

280 Summer Street, Boston, MA 02210 Phone 617-428-5100 Fax 617-428-5119 www.thewarrengroup.com ©2016 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.

Estate Planning for the Family Business Owner Requires Special Knowledge

By Kenneth P. Brier

E

state planning is never more challenging than when it’s for the owner of a family business. Such planning is fundamentally different from planning for other individuals, so the onesize-fits-all standard estate plan is virtually certain to fail the owner’s needs.

Why the Standard Plan Will Fail Worst is the unplanned estate. Everyone has an estate plan, whether you realize that are not. If not planned by you, the government has a standard plan for you.

Only slightly better is a “standard” lawyer-draft estate plan.

KENNETH P. BRIER Though it may be so-

phisticated in a generic sense, it may well fail to address the critical issues of business owners. For example, passing S corporation stock on to trusts of the kind commonly provided in the “standard” estate plan will blow the corporation’s S election.

Finally, even a well-executed estate plan, sensitive to special business issues, can fail if it is out of date. Personal and financial circumstances often change. And applicable state and federal laws have been in a continual state of flux.

Four Precepts for Planning for the Business Owner I boil the special attributes of estate planning for the business owner down to four precepts: one, think globally; two, face succession or face extinction; three,

deal with liquidity issues; and four, divide, discount and conquer.

Thinking globally: There is never a clear dividing line between planning for the business owner and planning for the business. If a business owner does not like the currently available choices, he or she often has the ability to change the menu.

For example, an owner, unlike a rank-andfile employee, can amend an existing retirement plan to obtain further options or terminate it and adopt a whole new plan.

To avoid making a taxable gift, I have sometimes suggested that an owner transfer business opportunities to the children, rather than the whole business. The owner can set the children up in a new company, primed with contacts and know-how Continued on page 14 5

Business Profile

Returning to Their Roots As it Returns to Family Leadership, A.W. Chesterton Also Returns to Family Values

A.W. Chesterton’s new distribution center in Groveland, Massachusetts.

By Abby Patkin

A

t family-owned A.W. Chesterton Co., they start ’em young; “Some of my earliest memories are my father really talking to me about the business when I was a boy. I think he probably even talked to me when I was in my crib,” jokes CEO and President Andrew Chesterton.

Chesterton credits his father’s stories with sparking his interest in the family’s sealing solutions and industrial equipment business. “My father was really very passionate about the business, and he would always talk to me about what was going on, and how we were growing a business,” he said. “That was probably the thing that got me really interested in the company, just seeing how passionate my father was about the business.”

His recent appointment – he took over the reins from Brian O’Donnell, a longtime Chesterton executive, in June – marks a return to family leadership 6

for the company, which was founded in 1884.

The Groveland-based A.W. Chesterton has over 1,250 employees, sales in over 113 countries and locations spanning five of the seven continents, but what it stresses most is the uncompromising importance of customer care. In a statement regarding his appointment, Chesterton emphasized his company’s commitment to family values and individualized customer service. In his statement, he noted that his immediate plans for the company focus primarily on “exceptional customer care, unparalleled product quality, and technical innovation.”

These are values that the company has held close since Chesterton’s greatgrandfather, Arthur Wellington Chesterton, founded it as a small steamship supplies shop on the Boston waterfront.

The engineering supplies side of the

business followed soon after and the company – which has remained under family control for over 132 years – has gradually expanded its services and offerings ever since.

‘A Winning Business Model’ With A.W. Chesterton in a state of regular growth since its inception, Chesterton points to a rather straightforward business model as the key to the company’s success. The model, he explains, is twofold: equal parts professional management and hands-on customer service.

When Chesterton first joined the company 29 years ago, the then-recent Duke University graduate took an entry-level job in the company’s customer service department. “It really taught me a lot about who our customers were and what they needed, and how we had to really be customer-focused to be a successful company, which is why one of

my emphases as CEO now is that we’ve really got to become a truly customerfocused company again,” he explained.

Chesterton also notes that one of his fondest memories from his time at the company was from his tenure as the strategic business leader for the company’s hydraulic pneumatic business line, an assignment that involved calling on customers and developing corporate accounts. “That was a really exciting time for me. I really enjoyed that and it took my experience in the business to a whole other level to have that role,” he said.

Now, he and his wife – Darina Chesterton, who leads the corporate quality organization – are the only two family members currently working at the company, though ownership of the private company is divided among Arthur Chesterton’s descendants.

But despite the strong emphasis on family values, Chesterton is careful to note, the management team’s professionalism and determination are what help keep the gears in constant motion.

Although the company puts heavy focus on its customer service department, “We have a very strong management team,

CEO and President Andrew Chesterton was appointed to the leadership position in June.

and I think that’s important too,” Chesterton said. “Sometimes people think that a family business is less serious than a regular business, but it’s definitely not at Chesterton. … We’re very serious,

we want to perform at a very high level and the Chesterton Company has always been about high quality and it’s always been about high performance, and that’s very much a part of our business model.”

Still, he said the company would not be as successful as it is today if not for its dedication to its customers – part of the reason why he has stressed the importance of renewing the company’s commitment to those values. “I think as we’ve gotten bigger over the years … we’ve developed more administration and more bureaucracy and things like that, which is a pitfall for all companies as they grow,” Chesterton said. “And I think what we really need to do now is really think about how we can be a truly customer-focused company again.”

“We really want to be driven by our sales force and what they tell us about the market and what they’re seeing out there so we know what we do internally will really be of value to the customer,” he added.

■ ABBY PATKIN IS THE SUMMER 2016 EDITORIAL INTERN AT THE WARREN GROUP. SHE MAY BE REACHED AT EDITORIAL@THEWARRENGROUP.COM.

Not all family members are alike.

At Tarlow Breed Hart & Rodgers we celebrate the differences that make family businesses special.

With guidance from our family business specialists, your company could bear fruit for generations to come. Isn’t it time you had a conversation with Ed Tarlow, Chairman of our Family Business Practice Group? Call Ed at (617) 218-2011.

Rise Above the Ordinary.

101 Huntington Ave., Boston 617.218.2000 | tbhr-law.com

7

SCHEDULE AT A GLANCE

New England Family B

H

eld for the first time this year at Boston’s historic Omni Parker House hotel, the New England Family Business Conference brought together family business owners from across the region to learn, network and celebrate their unique stories.

Keynote speaker Mahmud Jafri, CEO and founder of Dover Rug & Home, spoke about his family’s journey both from the perspective of an owner and an immigrant.

Dover Rug & Home began in a small Dover, Massachusetts storefront in 1989 and has since then provided responsive and individualized service to some of the area’s most discerning clientele. The company now has three locations in the state – and

has diversified with the addition of squash courts to the Natick location. Jafri is a devotee and supporter of the sport.

Breakout sessions during the day on June 8 featured experts from a variety of industries and fields. From fiduciary duties to succession planning, from marketing to financing, the sessions and featured panelists had information for everyone.

Kicking off the conference on the morning of June 8 was the third annual Outstanding Women of Family Business awards. Featuring keynote speaker Nora Yousif, a third-generation financial advisor at RBC Wealth Management, the event celebrates the unique contributions women bring to their family businesses.

Representing a variety of industries, these 14 women are not only family members and colleagues, they’re also respected members of the business community.

Some have been leading their companies for decades; others launched while still in college and have a bright future ahead of them. All of them are outstanding.

Produced by The Warren Group, publisher of this magazine, and the Family Business Association of Massachusetts, in partnership with Associated Industries of Massachusetts, Babson College and the Merrimack Valley Chamber of Commerce, this year’s conference was a great event and a good time. Save the date for next year’s conference!

■

Thank you to our sponsors!

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8

Gold Sponsor

Silver Sponsors

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Business Conference

Supporting Sponsors

Honoree Sponsor

9

Outstanding Women D E D I C AT E D T O N E W E N G L A N D

Kimberly Abare

President New England Die Cutting She runs a woman-owned company in a difficult and challenging business – manufacturing very precise parts for the defense industry.

She has balanced her growing company – which has just expanded into a modern, stateof-the-art manufacturing factory – grown her employee count, and leased some excess space to another company, all while balancing her role as wife and mother. Her two sons are now working at the company and are a part of the company’s success.

Amanda Alphen

Co-Owner, Treasurer & Secretary Dolphin Insulation She took great pride in assisting her (then) technology-challenged father with invoices, as she was able to type 100 words per minute, answering the phone and getting answers to people who needed them, creating a challenging and exciting role for herself. At the young age of 20, she became a partner. With her selftaught administration skill and organization, she helped the company double in size, which in turn created job opportunities for others.

Laura Bicknell-Carbone Vice President Alvin Hollis

She is the fifth generation of her family to take an active role in the company, a highly respected and successful energy company serving the South Shore. She is not only sustaining the family legacy, she is strengthening it, as she helps guide the business in a mature industry that is in transition. She is now proudly helping to bring her 16-year-old son into the business, thus ensuring a sixth generation of family management.

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2016

F A M I LY B U S I N E S S E S

Karen Bressler

Founder/Owner Amuleto Mexican Table She was the CEO of her family-owned business for over 20 years, and after selling it in the one of the largest private-company sales of 2012, founded a new and successful venture. Her commitment to Boston, serving those less fortunate, and her continued entrepreneurial spirit make her a pioneer in the family business sector.

Kathy Garfield

Chief Operating Officer Keller Companies Over the past 10 years she has been the person to sustain a dialogue about the future strategic alternatives for the businesses, address management succession and ownership succession, and serve as a motivator for driving operational improvements at all of the companies. The granddaughter of the founder and daughter of one of the businesses’ presidents, she has also been instrumental in bringing other third-generation cousins into the business, preparing it for sustained longevity and success.

Nancy Garran

Executive Director Cape Cod Sea Camps In addition to owning and managing one of the top children’s camps in the nation, she also owns and operates a collection of more than 13 rental properties, as well as an inn. She hosts a year-round staff of 24 and a summer staff of more than 250 employees.

The company was founded by her grandfather 94 years ago and continues to offer purposeful programs for youth.

Stacy Simon Gilman

Founder, Owner & Chief Buyer Tobey Grey Since founding her business over 10 years ago, she’s grown a loyal customer base, developed an innovative line of clothing and hired and inspired the hundreds of women who have worked with her over the years, many of whom have gone on to start businesses of their own.

She has infused the business with her spirit of honesty, hard work and a big heart. She is a pillar in her community and a force of nature.

Wendy Goodwin

President Cape Cod Shipbuilding Co. With more than two decades of experience, she now runs the oldest American sailboat builder in continuous production. The boats last for generations – as does the company.

With this third-generation woman at the helm, the company’s goal is to produce boats with timeless designs and unquestionable quality for generations to come.

Jane Kaplan Peck

Michele Lawlor

Owner D’Alelio Management Company Her father was working at a Union Square Dunkin Donuts when it went up for sale in 1977, and with assistance from his parents, he bought it. From there he and his wife purchased several more, and now their two sons and daughter manage 19 franchises throughout the Greater Boston area. The siblings pride themselves on running great stores, being compassionate neighbors and giving back to the communities in which they do business.

Heather Rotondi

Chief Financial Officer E.B. Rotondi & Sons When profits sharply declined and the company – founded in 1932 – was close to bankruptcy, this third-generation family member, who had never been involved in the business, left a successful career working with nonprofits in D.C. and came to the rescue. After enacting sweeping changes – some popular, some not – the end result was a company that will survive and flourish again.

Chief Operating Officer Kaplan Construction Founded in 1976 by her parents, she and her husband took over as COO and president, respectively, in 2014, after extensive training and a three-year management transition.

Since the transition, the company has been named as a Best Place to Work two years in a row and business has grown by 30 percent. In addition to running the company, she is actively involved in the Brookline community.

Donna Warren

Aline Kenney

Alicia Williams

Owner R.J. Kenney Associates The business was founded in 1970, and she and her husband worked as a team over the years, each with their own expertise. After losing her husband in 2010, she continued to run the company with the help of her remarkable family, who were taught by their parents the very principles that have made the company such a huge success. Its reputation is due to her dignity and professionalism.

President Botti Compay A person who is always true to her word, she has taken the reins at a 100-year-old construction company and makes it all happen in a mostly male-operated field. She works tirelessly to keep a welltuned group of construction workers and support staff running, in addition to being a mother, grandmother and all around good, honest person. She is a true standout in a family-owned business, in the construction industry, and among women everywhere.

Owner Aliste Marketing

She decided in 2008 to pursue her dream of owning a business. With zero investors or clients, she took a leap of faith. Under her leadership, the company grew from a one-person operation to a global marketing company, and now employs her brother and father. She is smart, caring, kind and passionate about what she does, and she is a role model for women in marketing and business.

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Business Continuity Strategies Don’t Have to Be Complicated

By Joseph H. Guyton

H

ave you been thinking about a business continuity plan? Many business owners are aware of the need for such planning. Some are even concerned about the issues and problems that a lack of planning brings. These issues include loss of key management, interruption of income, concerns over family control and equity, and retirement income JOSEPH H. GUYTON planning. But the dayto-day challenges of managing a family business can often complicate or even prevent the development of a continuity plan.

What are these challenges? There are several: 1. Business owners are busy running their business!

2. When not at work, they like to pursue hobbies or spend time with their family.

12

3. They are not sure what is involved, what needs to be done or how to start; the process may involve difficult conversations with partners or family members, and the potential solutions are not necessarily well understood.

Questions may include: • What is a buy-sell agreement?

• Who would buy the business?

• How do we finance the transaction?

4. Existing advisors may not be familiar with potential options; you don’t know what they don’t know. Advisors may also have a focus on product rather than strategy, which may create a bias in your plan.

5. Other challenges include a feeling that the family business doesn’t need a continuity plan, can’t afford the planning process, or that there is no one to help establish it.

If some of these challenges sound familiar and you are concerned about the

survival or transition of your business due to disability, death or retirement, take heart. Solutions are available. They are not necessarily too complex, and they may help you meet multiple planning objectives.

The best place to start is with your existing advisors – your attorney, CPA or financial planner. Describe your concerns to them and ask for ideas and feedback – ask a lot of questions. Don’t stop asking until you feel satisfied that you are on the right track. If they refer you to someone, be sure to interview them before committing to work with them. You need to be sure there is philosophical and business alignment between you and the advisor. You need to be comfortable with how the advisor will be compensated. Many advisors are purely product-driven, which may create a bias in your plan or may leave important areas that directly impact your plan uncovered.

It is important that you have a team, and a “quarterback” for the team, to serve your purposes. Business continuity planning is important by itself, but it needs to be coordinated with many other aspects of your plan such as estate, portfolio management, retirement income and life and disability insurance.

Not all of your advisors are expert at all of these areas, so they need to work together to get you the best ideas and outcome. Some advisors may not be in favor of a particular strategy, but you need to hear all of the ideas and decide for yourself how one or another will ultimately affect you and your family. These are decisions that will affect you and your family for years to come. They may also affect the level of retirement income that you have to enjoy.

Attributes of a good plan include the following: 1. Fits with your objectives and makes sense to you 2. Accounts for variables beyond anyone’s control and is likely to work “no matter what” 3. Has flexibility to be amended as circumstances dictate 4. Protects the various parties from actions of the other parties. This is essential if you plan to exit your business as a retirement income strategy, and may include the following considerations: a. Will you hold a note from your buyer? b. How capable is the successor manament? c. Will your buyer control the real estate that houses your business?

With the help of a qualified team, you will be able to develop a plan that provides a smooth, predictable transition in the event of retirement, disability or death.

It will provide liquidity and equity among family members as well.

It will give you the confidence that more than one of your long-term concerns has been addressed and allow you to focus on your business and family.

■ JOSEPH H. GUYTON IS PRINCIPAL OF THE GUYTON GROUP, A PORTSMOUTH, NEW HAMPSHIRE-BASED FAMILYOWNED BUSINESS THAT PROVIDES WEALTH AND LEGACY SERVICES TO BUSINESSES OF ALL SIZES. HE MAY BE REACHED AT (603) 766-9200, INFO@GUYTONGROUP.NET, OR WWW.GUYTONGROUP.NET. 13

Continued from page 5

and poised to grow at the expense of the old one.

Facing succession issues: Every business owner needs to pay attention to succession issues, addressing the orderly transfer of ownership, responsibility and control of the enterprise upon eventual retirement, disability or death.

Lifetime transfers, often made in conjunction with the founder’s winding down or retirement, can promote an orderly transition. Ownership, responsibility and control need not be vested in same person. Those attributes can be separated by, for example, issuing non-voting stock or hiring professional managers. The owner needs to determine whether the stock will be gifted or sold, and if the latter, whether within the family or to an outside party.

A common issue is how to deal with several children, only one of whom works in the business. Does that child get all of the shares? If an unequal distribution, should the other children’s inheritances be evened off with other property? The owner needs to exercise special care in the choice of personal representatives and trustees. Who will have the ability to run the business until an orderly disposition can be made? A buy-sell agreement can address many of these issues.

Dealing with liquidity issues: The government still extracts a sizeable estate tax from any large estate, and it wants payment in cash, not stock, within nine months from the date of death.

Often neither the business owner’s es-

tate nor the business has enough cash of its own to pay the tax bill. Borrowing is only a temporary expedient. But cash that is otherwise unavailable can be generated through life insurance. Though it is not free, it does provide a tax-advantaged way to pre-fund the cash needs and make cash available exactly when it is needed.

Whether or not there is insurance, either the estate or the business commonly will have to sell assets to a third party, often a life insurance trust.

A buy-sell agreement can come into play as a liquidity vehicle, prescribing in advance the arrangement whereby the estate will sell its shares to the party with the cash, usually derived from an insurance policy. If the sale is made to the company, it is a redemption agreement. If the sale is to the other owners, it is a cross-purchase agreement.

Divide, discount and conquer: Transferring interests in closely-held businesses at the least tax cost commonly has involved various strategies to suppress value. This is done by carving the business up into various minority interests, or more generally, restricting the individual owners’ rights in the business interests. The premise is that the sum of the parts then does not equal the whole. These techniques are often labeled as creating discounts, though the term “discount” in many respects is a misnomer, because you really do need to affect the current value of the individual owner’s interest. There are two kinds of basic discounts that may apply, namely discounts

BUSINESS BFM MFAB ad v1_Layout 1FAMILY 4/8/14 5:23 PM Page 1

for lack of marketability (illiquidity) and minority interest (lack of control).

Strategies to divide and discount got a substantial boost in 1993 through the IRS’s issuance of a revenue ruling retreating from its position of aggregating family interests for valuation purposes. Neither Mom’s stock nor Daughter’s stock was now to be considered in determining whether or not Dad had a controlling interest. In fact, even if Dad did have a controlling interest, he might carve off a smaller piece and give it away as a minority interest.

The IRS since then has since waged a rear-guard campaign to combat such discount planning, especially as it extended to non-operating family limited partnerships and LLCs. This counteroffensive has recently culminated in new proposed regulations on valuation discounts for intrafamily transfers of business interests, seeking to breathe new life into 1990 tax legislation providing for the taxation of certain lapsing rights and the disregarding for valuation purposes of certain restrictions on liquidation. It remains to be seen whether these controversial proposed regulations will be finalized in something like their present form and what effect they might have on an operating businesses.

■ KENNETH P. BRIER IS A PARTNER OF NEEDHAM-BASED BRIER & GANZ LLP, A BOUTIQUE LAW FIRM FOCUSING ON TAX, BUSINESS, ESTATE PLANNING AND WEALTH PRESERVATION MATTERS.

SERVICE GUIDE DIRECTORY

LAW OFFICE OF ATTORNEY GORDON E. FEENER Over 22 years of Experience Assisting family business with: Offering comprehensive investment counsel, estate planning and fiduciary services to individuals, families and endowments for over 35 years.

— Please contact Mike Brown at MikeB@BFMinvest.com —

ONE WINTHROP SQUARE, BOSTON, MA 02110 617-338-8108 • www.BFMinvest.com

14

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