Planning for Franchisee Succession, Asset Protection

Florham Park partner Ed Gramigna and associate Kristen Curatolo wrote an article for The Franchise Lawyer titled, “Planning for Franchisee Succession, Asset Protection.”

In the article, Ed and Kristen offer suggestions about how franchisors and franchisees can work together to plan a future that is rewarding for each of them.

In franchisor-created succession programs, succession planning may involve a franchisee identifying a successor, a franchisor evaluating and approving the successor and both franchisor and franchisees working jointly to educate and train the successor.

In joint ventures with key employees, with a franchisor’s approval, franchisees may eventually transfer their business to one or more key employees through a joint venture agreement. In this arrangement, a franchisee would identify one or more key employees who are interested in acquiring the franchise in the future.

Another approach for a franchisor to demonstrate its commitment to its franchisees’ success is wealth transfer planning.  

An Irrevocable Life Insurance Trust (ILIT) is designed to provide the liquidity to pay the estate tax as well as to provide funds for the franchisee’s family. Franchisees with substantial life insurance policies may consider structuring their policies into an ILIT to avoid federal and state inheritance tax implications.

A Grantor Retained Annuity Trust (GRAT) is a wealth transfer technique created under section 2702 of the Internal Revenue Code. GRATs are irrevocable trusts that are structured to allow the creator of the trust to transfer assets to family members with minimal gift tax implications.

Ed and Kristen conclude: “When franchisors and franchisees communicate and plan for business succession, the results can be mutually beneficial.”