Continuing equity is a lot different than continuing a business, entrepreneurs are discovering after they sell their businesses. What the best approach is depends. Here are five eye-openers in advance.
1. A settlement clause reduces inheritance tax
To protect their business, entrepreneurs usually choose prenuptial agreements when they marry. But if they sell the business, they are not always so favorable anymore. Suppose the sale proceeds are a net 10 million and the entrepreneur dies afterwards. The estate is equal to the sale proceeds and the other partner's private assets are zero.
The partner who inherits will then pay inheritance tax on the entire amount - excluding about €800,000 (2024: €795,156) exemption. A simple way out could be to include a settlement clause in the prenuptial agreement; the inheritance is then handled after death as if there was a community of property. The partner will then pay inheritance tax on half of the inheritance because he or she has obtained the other half through the settlement clause. Minus the exemption, this saves about a million euros.
2. With a family fund, make sure your children have controlled access to their money
Entrepreneurs often worry about how children will handle a substantial gift or inheritance. There are good solutions to this as well, such as establishing a family fund or donating under guardianship. It is then established under what conditions children will have access to the money, for example from a certain age, after graduation or for the purchase of a house.
Formulate a financial plan to make the most of your proceeds 3.
Continuing assets after the business sale also involves a variety of considerations. How do you factor in taxes? How much income from assets is needed for a worry-free life? Suppose a 55-year-old entrepreneur previously had an annual income of 100,000 euros, and now that he has more free time, he wants to be able to spend 150,000 euros per year from now on. That means that for 25 years he needs grossly over 200,000 euros per year from his company, adding up to over 5 million euros.
With a financial plan you can set this up properly, with as ingredients: your personal and business situation, your wishes and needs, a scenario analysis based on investment returns as well as tax considerations. Involve an expert - such as Delen Private Bank - to help you with this.
4. Continue investing in entrepreneurship with an equity-based loan
Next question is: Do you still want to invest some of it, such as in start-ups or real estate? An equity-based loan can be a great solution for that. At Delen Private Bank, there are options in this regard, at a favorable interest rate.
Incorporate asset structuring well in advance 5.
Consult ideally early on about asset structuring and selling the business. The importance of this is often underestimated. If you map out a number of matters before the sale, you can immediately determine whether the sale price is high enough to live on and how much you have left over for other things.
It's also wise at this point to think about the visibility of assets acquired through a public information source such as the Chamber of Commerce. There are ways to protect your privacy.
