Advanced Tax Planning Strategies for High-Net-Worth Business Owners
Insights from Industry Leaders
In a recent IEPA Expert Interview Series discussion, Ed Barone, member of the IEPA Executive Leadership Council and CEO of Evergreen Exit, sat down with Michael Niemann, founder and CEO of the Niemann Group, to explore sophisticated tax planning strategies that Exit Planning professionals need to understand for their business owner clients. As Exit Planning practitioners increasingly face complex client situations involving business transitions, understanding these advanced tax and charitable giving strategies becomes a key differentiator for advisors.
Planning Timeline and Maximizing Exit Planning Opportunities
Michael explained that there are three timeframes for tax planning. “One, well in advance, which is what we always recommend. . . bringing in comp and exit planners to get the company ready and figure out what the succession is going to be.” The second is in conjunction with estate planning, and the third is at the finish line, when a letter of intent to purchase the business has been signed.
The options can become more limited with a shorter planning horizon. But as Michael notes, “You get that dreaded question, ‘I just sold my business two weeks ago, what do I do?’ And what we want to say is you should have called us two months ago, but the reality is there still are things.”
Preferred Supporting Organizations: Maximizing Charitable Impact While Preserving Family Wealth
Drawing from his extensive practitioner experience, Michael explains that “a supporting organization is a public charity that supports one or more other public charities.” He elaborates on the practical benefits: “We say we’re giving a dollar to charity, we’re going to give a dollar to charity. But at the end of the day, if we can give a dollar to charity and get back over time some of that upside . . . if we go and invest it in a diversified portfolio with you or other competent investment advisors, there could be a lot of upside coming back to the family.”
Pooled Income Funds: Multi-Generational Planning with Immediate Benefits
The conversation then turned to pooled income funds (PIFs), where Michael shared concrete implementation examples. Michael described a four generation PIF for an older client in his late eighties that carried through to his infant great granddaughter. “If we just sold it, paid the taxes as a bunch of real estate, they would have $32 million afterwards… Instead, we did this structure and we designed out the same growth rate, same consumption, that when that great-granddaughter dies, they’d have over $2 billion.”
Management Services Organizations: Ongoing Tax Efficiency for Operating Businesses
Moving beyond traditional applications, Michael explains, “It’s not just for doctors or professional services. It can be for a manufacturer that’s moving some of their operations over here… We also are using it in unique situations like professional athletes, with entertainers.”
The strategy offers significant tax advantages: “We can potentially move somewhere between 15 and 25% of the ongoing income outside the company into a related entity, and have that related entity be tax exempt.”
Implementation Insights from the Field
The key to successful implementation lies in early planning. As Michael emphasizes, “When we do estate planning, we do income tax planning at that same point. Then you get, ‘well, I didn’t do that planning.’ Now I’m at the finish line, I just got an LOI about to sell. Then we use charitable structures like this at the finish line.”
Looking Ahead: The Practitioner’s Perspective
As Michael noted, “We consider ourselves really tax educators. We’re here to tell you what your alternatives are.” These strategies represent significant opportunities for Exit Planning professionals to help their business owner clients maximize their net income after tax and achieve both charitable and family wealth preservation objectives.
Ed Barone is a Certified Business Exit Consultant® and member of the IEPA Executive Leadership Council. Michael Niemann brings over three decades of experience in high-end tax and estate planning, having served as a national leader for an advanced life insurance firm and a regional leader for two of the big four accounting firms. His team at the Niemann Group has facilitated over $160 million in charitable donations through innovative planning strategies.