Peter McKnoulty shares real life circumstances that highlight the importance of Transition Planning (Part Two)  

In last week’s blog post, Peter McKnoutly, founder of Transition Planning Australia, gave some examples of situations that demonstrate the importance of planning for your transition into retirement, and how that can be an integral part of the broader business succession planning process. This week Peter shares another real-life situation that proves the multitude of ways in which transition planning can assist in ensuring you are on the right path for a happy and healthy retirement.

Case Study: Richard takes a strategic approach to hand his family business to his son and fully prepare for retirement.

When you’re a self-confessed workaholic and you’ve built up a successful family business, letting go can be a challenge. That’s the situation faced by Richard, 65, who’s the managing director of his family business, while son Matthew is general manager.

Richard and his wife Anne have recognised that the process won’t be easy, so have called in the help of advisers, including their financial adviser and a Transition Planning Consultant, to develop strategies for personal transition, business succession, family succession, and their inheritance strategy.

Their personal transition plan plays a key role in moving away from full-time work and creating a purposeful and fulfilling life. The plan will help Richard to mentally prepare to let go of his business and successfully hand over the reins to Matthew.

Richard and Anne plan to stop full-time work in the next couple of years and gradually ease out of the business. During that time, Matthew will take over more responsibility for managing the business, while Richard concentrates on business development.

The family meets on a regular basis to monitor progress for their business succession strategy, while Richard and Anne continue to work on their family’s succession and inheritance strategies. Some of the strategies they are considering include –

  • Richard and Anne wish to recognise the valuable contribution which Matthew has made to the growth of the business. Options include gifting a share of the business to Matthew over time. Their advisers are providing advice on how best to structure that proposal.
  • Ultimately, Richard and Anne wish to ensure equity in their inheritance strategy as between Matthew and their daughter Olivia. Their likely strategy will be to leave their wealth (excluding the 25% interest in the business gifted to Matthew) equally to Matthew and Olivia.
  • Matthew will have the option to buy the balance of the business from the estate with the purchase price credited against his share of the estate. If the business is worth more than that share, then the estate will provide vendor finance and Matthew will be allowed to pay the balance over a reasonable period of time.

Richard and Anne’s adviser team have encouraged them to focus on the commercial aspects of their business succession and retirement inheritance strategy. As is common, Richard and Anne have structured their business and investments in a way which provides flexibility and asset protection for them. There adviser team is able to implement their strategy having regard to their business and investment structures.

Richard and Anne have accepted the sound advice of their financial adviser, and have developed a range of investments outside of the business. Those investments can provide them with a comfortable retirement income, and a source of assets for Olivia’s inheritance.

Most importantly, Richard, being something of a workaholic, needs to develop a range of activities outside the business so that he will actually let go.

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