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Building Generational Wealth Through ESOPs: The Tax Benefits to Selling To An ESOP

2024-06-03

In the latest episode of THE EXIT Podcast, titled "Building Generational Wealth Through ESOPs," the host and Certified Exit Planning Advisor, Brett Dearing, along with guest David Jasmund, Managing Director at PCE Investment Bank, explore the complexities and benefits of transitioning a business to an Employee Stock Ownership Plan (ESOP). They discuss the advantages for shareholders, employees, and the business itself, including tax benefits, stability, and the potential for transferring wealth across generations. The conversation also covers the flexible nature of ESOP transactions, available financing options, and the role of ERISA legislation in facilitating these changes. The episode further underscores the governance of ESOP-owned businesses and the financial incentives for both selling shareholders and employee participants. With the influence of 7,000 ESOP plans on 28 million employees in the U.S., this discussion offers vital insights for business owners planning their succession.

Timestamp Overview:

00:00 Introduction: David Jasmund, Managing Director at PCE

04:56 Management buys out ownership, discusses employee stock ownership.

07:19 Succession planning for business ownership and factors.

11:03 ESOPs: wealth transfer, confidentiality, leadership, liquidity, secrecy.

16:28 ESOP transactions occur at fair market value.

18:35 ESOP trustee evaluates cash flows, distributes ownership.

22:27 ESOP trustee represents employee interest in company.

26:56 Sell shares to ESOP, defer tax, avoid gains.

29:53 Specialized lenders help structure ESOP financing. Private equity also participates in funding ESOPs.

31:23 Webinar covered key points on ESOP benefits.

37:23 ESOPs offer advantages for both employers, employees.