Free Continuing Education for Small Business
The new tax law signed by the President in December gives the owners of Family Businesses probably the biggest tax break to come along in many years.
That break is the lifetime gift tax exemption, now $5 million, for next two years (2011 & 2012); or $10 million for a married couple.
While the estate tax exemption amount has been increasing year to year, the lifetime gift exemption had stayed at $1 million over the past 10 years.
If the current law "sunsets" on December 31, 2012 as it is scheduled to do, then the lifetime gift exclusion amount and the estate tax exemption will both go back to $1 million.
Even if you had previously used up your $1 million lifetime gift tax exemption, now you shift an additional $4 million out of your estates.
This two year window allows the owners of family businesses to transfer the stock in their closely held companies to the children or other family members and reduce the size of their estates, all tax free.
This strategy raises difficult questions for those now in charge as to how to maintain control and/or a stream of income from the company they currently work in and manage. How do they protect their interests and maintain their retirement while passing wealth down to the family?
Experienced estate planning lawyers can develop "salary continuation plans", "consulting agreements", and other legal mechanisms to protect the owner's financial stake in the company.
Other difficult decisions include how to treat other beneficiaries fairly when only one of the beneficiaries is going to eventually lead the business.
This may mean an amendment of the estate plan. The timing, nature and size of the gifts have to be considered in the context of the overall estate plan.
Consult with your estate planning attorney before making any type of gift transfer.
Dwight Edward Tompkins
Attorney at Law
This blog is intended for informational purposes only and is not intended as a substitute for legal advice from a qualified estate planning attorney in your jurisdiction.