Introduction by Lauren Owen
My friend Simon Siegl is a business consultant to independent, family owned wineries. Over the last year, he conducted interviews with industry leaders who have successfully navigated the exit process. Some of these transitions were to other family members, others were to third parties. Although these interviews feature winery owners, the lessons shared are certainly applicable to all family-owned business. The key take-aways? Tax implications should be tightly integrated into an owner’s efforts in the areas of corporate ownership structure and personal estate planning; that one’s professional advisors in these areas, including your accountant, need to be knowledgeable and work very closely together; and that all of this takes considerable advance planning time.
John Bookwalter, Bookwalter Winery
John’s thoughts:
“My recommendation is that accountants and attorneys have to be in lock step through the process. Ours weren’t at the time, so my parents wound up getting a sizeable tax hit. We also had a property tax issue, but we fought that and got them to back off. I would really recommend that you work with someone who understands taxes – winery taxes – and can manage them well, whether you’ve had losses or gains.”
Bob Betz, Founder and winemaker, Betz Family Wines
Bob’s experience:
“The transaction involved only me and Cathy – the children did not have any ownership. We had a tax specialist attorney work with us to protect us as much as possible, but even with that, the tax burden was very significant. We also had the buyer pay certain obligations as part of the deal. About two years before the transaction, we began personal financial planning with a professional in Bellevue. He was brought into the discussions about the transaction and helped us structure a series of investments. He gave us half a dozen scenarios that we could pursue depending on when it happened, what the tax implications were, and what the final figure would be. So when we pulled the trigger and the check came in everything was set up. We were ready to respond to tax obligations, cash needs, and tuition funds for the grandchildren. And we have a nest egg of investments to take care of our needs into the future.”
P
atrick Campbell, Former owner of Laurel Glen Vineyards, Owner and Vineyard Manager of Tierra Divina Vineyards
Patrick’s philosophy about the impact of taxes on the transaction:
“Mostly I paid them. There was some structuring and protecting exposure, but for me the reality is that people ought to pay taxes. I mean I can’t be yelling at the government for not supporting education when I’m trying to get out of paying taxes myself. It’s just part of the social contract.”
Michael, Rob and Dina Mondavi, Folio Wine Partners
Michael’s advice:
“The additional pressure of the financial burden of estate tax at the time of transition can destroy the continuity of a family business. When you’re a successful company you’re going to be paying 45 to 55% tax. If you can minimize that burden you can minimize some of the stress – both emotional and financial – on the
family members.
We set up Folio Fine Wines with that in mind because we hope the company will be successful long-term. I had the luxury of both my son and daughter being in their mid-thirties, being very passionate about the business and being very involved and capable in the business. So we were able to set up the company when it had very little value with my son and daughter owning 39% each. The employees have 12%. Then as the value grows in the future and my wife and I die they will have estate tax on our 10% ownership, rather than the majority of the company.
One of the reasons for this structure was from lessons learned when we transitioned from the privately owned Robert Mondavi Corporation to public ownership. Because of the community property laws of California, when we were privately owned my father and mother were each 50% owners. My brother, sister and I did not start receiving stock until my parents’ divorce in the 1970s. My mother distributed some to us and we were able to purchase the balance of her stock. That’s when my brother, sister and I first got our shares in the Robert Mondavi Corporation – when it was private. When it went public my brother, sister and I were employees, and we had some stock options. The rest of the stock remained with my father until his demise. Most of that was impacted pretty heavily by estate taxes which is what influenced me to try and set up our company so that the next generation owned the vast majority of the stock. Therefore, when my wife and I die it will not be a traumatic financial problem for the family.”
For more information onSimon’s practice, Coefficient Consulting, or his article, please contact him at 206.660.9738 or simon@coefficient-consulting.com. For more information on Redpoint’s succession planning work, visit: http://www.redpointcoaching.com/services/index.aspx.
Our sons Luc (6) and Liam (4) and I have our Sunday skiing routine down and it’s great! We leave the house for Snoqualmie Pass around 830 am, stop at Starbucks (a non negotiable as far as Luc and Liam are concerned!). After the usual getting dressed and putting the ski gear on drama, they start ski school at 1030 am and I am off for a cross country ski.
Enjoying the mountain air, scenery, and the company of good friends! What could be better? We spent the weekend near Mt. Rainier with Bill Stokes and Lois Maag, Barbara Placek and John Thomas, all of whom have been dear friends of mine for over 30 years. (I met Bill and John my first week in graduate school which will give you some idea how old my MBA degree is!) Hiking, skiing, good wine, plus lunch with a view from the top of Crystal Mountain were all included.
