The Ray Burbank family has called Washington State home for 100 years, and their family business, Burbank Stucco and Drywall Inc., has called Washington home for 40 years.

Well entrenched in the landscape of Seattle, this family has no intention of either they or their business leaving the Emerald City.

Starting with one truck in 1966 and one employee, in addition to Ray, they started BSDI from scratch. The company now employees hundreds of people and are kept busy in Washington and Oregon.

The hard work has paid off and the Burbanks, as a result of their $25 million company, enjoy a very comfortable lifestyle. Ray, 65, is still intricately involved with the company and owns 100 percent of BSDI.

His wife, Rachel, phased out of the business in 1968 when they had the first of their three children.

Two sons, Nathan and Adam, are very involved in the day-to-day operations and have worked their way up to management level with the hopes of one day taking over the family business. Their sister, Lauren, although very close to her brothers, never showed much interest in the family business and while she still lives in the same Seattle general area as her family, is involved in a career unrelated to the family business.

The Burbanks are a classic example of a family business that took a chance, worked incredibly hard and made their company successful. It is of the utmost importance to the Burbanks that BSDI continue on for Nathan and Adam and, if possible, future generations of Burbanks.

Unfortunately, when it comes to a family business, regardless of industry, intentions aren’t what makes these goals and dreams happen - proactive estate and succession planning are the keys to driving a company into and beyond the next generation. Actions speak much louder then intentions, and insufficient or improper planning combined with hefty federal estate taxes speak louder then anything.

With a two out of three failure rate of first generation family businesses making it to a second generation, the Burbanks will find that successfully transferring their family stucco and drywall business to Nathan and Adam may be more challenging then anything they have ever faced.


BSDI is doing well. What challenges will this family face when it comes to transitioning their business from Ray to the next generation?

Do Ray and Rachel transfer the business a third to each child (although only two of three are active)?

Combined with the $25 million company, Ray and Rachel’s non-business assets make their estate worth $30 million. They are presently faced with a corresponding federal estate of approximately $15 million (due and payable nine months after the second death of Ray and Rachel).

There are three key employees that are absolutely vital to the day to day success of BSDI - what assurances do Nathan and Adam have that these key employees will stay once Ray exits the business?

These are just a few of the very common, yet often overlooked challenges for a successful family business. If these areas are not addressed through quality estate and succession planning, then the Burbank family will be almost assured of losing the company. Conversely, if proper planning is implemented and reviewed annually, they have a very good chance of seeing their business thrive and prosper for many, many more years.


From our experiences, unless it is a very unique situation, we generally recommend that only children that are actively working in the company receive business interests in a family held concern. Typically, the company and related assets comprise 70 percent or more of a business owner’s estate. If there is one child working in the company that ultimately gets a 70 percent distribution of the estate assets, without proper planning, that means that the other three children will receive 10 percent each. Properly structured life insurance is the key asset in equalizing the inheritance for children of family business owners. There is no other planning technique that allows the immediate creation of wealth. Caveat: The correct acquisition and implementation of life insurance for estate and business planning is often complex and sophisticated. As with legal and accounting/valuation work it is critical that this part of the planning is handled by experienced specialists. There are countless stories of business owners having life insurance only to see premiums unexpectedly skyrocket, implosion of policies, etc.


Insufficient liquidity, when it is needed most, has been a constant in destroying family businesses. As stated earlier, the federal estate tax (with rates starting at 37 percent and rising to 55 percent) is due within 9 months after the date of death of the second spouse. In the Burbank case, Ray and Rachel may have a $30 million estate but with $25 million of it being illiquid, how will the executor raise over $10 million in nine months? Their “solution” as it is for other closely held family businesses is to liquidate hard assets (i.e. BSDI, land holdings, etc.).

Liquidating is the last thing Ray Burbank would ever want to do. He and his family have worked too hard to build BSDI to not see Ray’s and Rachel’s sons continue the success of the family enterprise. If the Burbank’s don’t liquidate, however, how else is the family coming up with more the $10 million in cash to pay the IRS? The company should qualify for a Section 6166 program (IRS 14 year installment plan), as Ray’s closely held stock makes up more than the required minimum of 35 percent of the total of his and Rachel’s estate.

The problem with Section 6166: other then BSDI being a business partner with the IRS for 14 years, even with nominal interest rates the first four years of the 14 year plan, when all is said and done, the Burbank estate will pay more than what the original tax bill is (as they have to pay principal and interest, regardless of how attractive the interest is in the first four years).

Although, there are many tax planning strategies available, when a tax bill becomes due the options to pay the bill are few. If an estate is liquid, there is the option of paying cash from the estate. This will take care of the obligation, but is obviously expensive as a family is paying 100 cents on the dollar and losing the cash and future appreciation of the cash forever.

Secondly, if an estate qualifies, the executor can borrow money. This route is even more expensive then self-funding the tax, as the loan amount and interest must be paid. Thirdly, is the option the Burbanks don’t want to entertain - selling BSDI to raise capital to pay their tax bill? Finally, life insurance, if acquired and structured properly, can save the Burbank’s millions of dollars compared to the other methods of payments. By positively leveraging premium dollars into a tax free death benefit, the Burbanks will: take care of their tax bill, save millions of dollars in the process and succeed in their goal of keeping BSDI in the family.


If the tax bill is paid and Nathan and Adam now have BSDI as 50/50 owners, what happens if another company lures away the three key people? Overnight, BSDI can become a different company - and not for the better. In this instance, “golden handcuff” programs should be implemented to retain these three valuable employees. The “golden handcuff” would be an asset to BSDI and the three employees would have a very attractive retirement program should they stay with the company until retirement. Many business owners are under the impression that the only way to retain key executives is by giving away ownership interests in their closely held company. This is not the case as properly designed deferred compensation programs; many times will provide the same end result of retaining the employees as would the transfer of ownership.

There are, of course, many other issues involved in perpetuating a successful family business enterprise. The issues referenced in this article are critical and business owners should not minimize the importance of addressing them. It can literally mean the difference between your family business surviving or not. Legislative Update: The Economic Growth and Tax Relief Reconciliation Act of 2001, which provided taxpayers some temporary relief, including a one year repeal of the federal estate tax is set to expire December 2010. As of this writing, if no change is made to the federal estate tax law, the exemptions will revert back to $1 million per United States citizen.