mulling over retirement and transfer of ownership to kids June 18, 2025

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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mulling over retirement and transfer of ownership to kids
June 18,  2025
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mulling over retirement and transfer of ownership to kids
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Ken
   I was considering calling you on this, but I bet there are several other operators that share my issue and the newsletter can benefit many. If they are not here yet they might be here soon.
   I am 70 years old and have been operating a security business since 1976. Over the years my 2 sons and daughter have come to the business. During these times I have endured multiple health troubles, actually for decades. There have been times when I would struggler to operate a business while spending 30 days in bed or 20 days in the hospital. If it were not for my children, I would not be in the business today as they have built the business into what it is today. What started as a one-man army has grown into a multi-million-dollar company, but it is not my doing. I am no longer able to strap on a tool belt and climb ladders. If it was not for my kids I would have had to quit, sell, bail-out, retire decades ago. Yes, I still work at a desk, half days. I do get telephone calls from clients and I meet with the operation on most days, but I am no longer the company, the kids are.
   I use the word kids but yes, they are well educated adults who are very experienced in the industry, each with 15 - 20 years of experience and more. They are all much smarter than I ever was. They do it all, they meet new clients, make the sale, create the contract, establish the account,, chase the money. They do their own payroll. Sometimes they ask my advise.
   The situation is that the business is in my mine and my wife's name, but the value was built by our dedicated children. I need to transfer this value to their ownership. The question is how do I do this? If I were to sell to a 3rd party, the large share of value should belong to those who created its value even though they do not have ownership.
Any future growth in this business will not be due to my effort and I do not feel that it is not fair for my ownership value of this business to grow at the expense of those who inspire that future growth. I do not think that it was ever an intention to sell out and I am extremely pleased that my children have an interest.
   Taxes are a concern, proper transfer is a concern. Should I, can I, sell to them at a discounted rate? What determines the rate? Can it be evaluated at a time before they became involved? But even so, I did inspire business many years ago while they were very hands on.
What if I die and the business is simply "willed"? Or if I transfer it now and hold a note with reasonable payments to be dismissed at my death? I do not need a whole lot of income anymore. I don't think I want to hold full ownership while I become less and less able while they build it to another level which I expect will only make it more complicated.
   I am in New Jersey.
I am not looking for a buyer and please sign this as
absolutely anonymous

Response
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   You are all over the place, but the first issue you need to grapple with is, are you willing to give up control now or foreseeable future? Most of your issues are easily resolved by turning over the shares, for a corporation, or membership interest, for an LLC, to your kids. That transfer of ownership may or may not also give up, or retain, control. It could accompany a generous buy-out provision or continued employment package. Yes, there are lots of issues, but all within your control; all you need to do is make up your mind.
   Taxes are not really something you need to worry about. There won't be any tax on a "gift" transfer because you and your wife presently have an estate-gift tax credit of much more than the company is worth, almost 28 million dollars. You are also lucky to have lived beyond January 1, 2018 because that's when NJ ended its estate tax. It does have an inheritance tax, which I am not going into, because maybe you'll live long enough to move far away from NJ anyway.
   There is one advantage to dying still owning the company and that is the "stepped up" value. A stepped up value will benefit your kids when they sell the business because their basis will be the value on your date of death, rather than your basis which is much lower and perhaps zero. Your accountant should be able to explain the tax implications; if not you need a new accountant.
   So bottom line for you is that you don't need to worry about taxes and transferring control can be done in a few hours by my office. All you need to is decide when.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
ken@kirschenbaumesq.com
www.KirschenbaumEsq.com