Gifts
of Family Business Interests
One of the
simplest techniques in estate planning for business owners
is to give interests in the business to children while
alive. The interests can be non-voting interests. The
interests will also usually be minority interests and they
qualify for a discount in value. Substantial value can be
transferred this way by making initial gifts of the tax free
amount ($1,500,000 in 2004) to the children. Also, each
year, each parent can give $11,000 worth of business
interests to each child. If one of the parents does not own
any of the business the owning parent can transfer any
amount of the business to the non-owning parent tax free
because of the unlimited marital deduction. Over time a very
significant value can be transferred to the children this
way free of estate and gift tax, especially if the value of
the business is appreciating. Note that taxable income can
also be transferred to the children this way.
The gifts can be
made to the children outright or to the gifts to them can be
made to a trust for their benefit.
Use of this
device requires an appraisal whenever gifts are made and
business appraisals are expensive so that must be considered
when using this device.
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