Should You Restructure Your Wine Company Ownership and Management
Should You Restructure Your Wine Company Ownership and Management to Reduce Gift and Estate Tax and Preserve the Business For Future Generations
October 19, 2016
Author: William H. Davis
1. . Many family wineries and owners of vineyard properties have siblings or relatives who have worked well together to build a family business. Although many owners have more than one child that intends on being involved in the business following the retirement, incapacity, or death of the parents, some children have no interest in continuing to build and maintain the business. Before too many children or grandchildren inherit stock in a family corporation (or interests in family limited partnerships or limited liability companies), you should consider forming a separate family unit for each owner’s interest before the business becomes too diluted with differing objectives and goals by family members. We have found that by creating Limited Liability Companies (“LLCs”) for each original owner of the business, you have the flexibility to carry out your business and estate planning objectives.
2. . An LLC can designate a specified number of persons to act as successor managers, as well as grant such successor managers control over the Family LLC’s business. The LLC agreement offers considerable flexibility and can be customized to accommodate the Owner’s particular business and estate planning objectives with respect to his or her own family. Such an agreement can segregate and consolidate internal voting rights within the Family LLC, ensuring that each family member is represented with respect to voting matters (without over-encumbering such management with too many participants).
3. . An Owner can gift certain interests in the business to his or her children or grandchildren, yet continue to manage the family’s entire interest. Such an ownership and management structure enables the owners to implement their estate planning objectives before December 31, 2016 with minimal disruption to the business, reduce their respective gift and estate tax liabilities (by increasing valuation discounts) provide additional asset protection and, most importantly, improve the likelihood of preserving the business for the owners and their respective families. Proposed Treasury Regulations (supported by The White House and, following the December 1 hearings, will result in final regulations by the end of the year) will increase estate taxes on the death of owners, with the snowball effect of potentially forcing your heirs to liquidate the business or sell to non-family members.
By creating family limited liability companies to hold their respective stock or interests in a business, each owner can control his or her Family LLC, while also offering maximum flexibility from an economic, management, and tax standpoint. After this is created, each owner can transfer ownership interest in their Family LLC to family members as part of his or her overall estate plan. Serious consideration should be given for the Family LLC entering into a buy-sell agreement that restricts transfers of stock, while also permitting the business and/or Family LLC to buy-out another Family LLC upon the occurrence of certain events.