Jul 17, 2022
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Beyond the $13,000 annual gift tax Job Function Email List exclusion, the business owner can gift $1 million ($2 million for a married couple) during his/her lifetime. While the use Job Function Email List of the gift tax exemption reduces (dollar for dollar) the estate tax exemption at death, such gifts remove the income and future appreciation on the gifted property Job Function Email List from the business owner's estate. Unlike the estate tax exemption, the gift tax exemption remains fixed at the Job Function Email List $1 million level. While a business owner can gift shares in the business outright, consideration should be given to making the gifts in trust. One advantage of making gifts in trust for Job Function Email List the benefit of the active children is to protect them from their inability, disability, creditors and predators, including Job Function Email List divorced spouses. Another advantage to Job Function Email List making gifts in trust is that the assets in the trust at the children's deaths can (within limits) pass estate-tax Job Function Email List free to the business owner's grandchildren (and perhaps more remote descendants depending on state law). These are sometimes known as generation-skipping or dynasty trusts. For business owners with very large estates, there are Job Function Email List sophisticated gifting strategies that can be used with little or no gift tax, such as installment sales to a grantor trust, private annuities, grantor retained Job Function Email List annuity trusts, and self-cancelling installment notes. There is also statutory relief, including Internal Revenue Code Section 303, which permit the tax-free use of a closely held corporation's cash to pay a deceased shareholder's Job Function Email List estate tax; and IRC Section 6166, which allows the business owner to pay estate taxes on installments. Life insurance often plays an important role in a business succession plan.