The window of opportunity for anyone considering a tax-efficient transfer of business ownership is now. Business ownership transfers are a popular estate tax planning tool used to retain as much value as possible “in the family.” In the current economic climate, not only are we encountering low interest rates, but also extremely low valuations for almost all types of assets, including businesses, securities and real estate. While these factors create huge challenges for us as business leaders, they do create significant tax planning opportunities.
Transferring Ownership.
There are many methods used to transfer business ownership to the next generation. Determining the best method for any particular situation depends on the structure of the business as well as the type of business. Whether you are the sole owner wanting to transfer value to children outside the business or to family members involved in the business, different types of vehicles can be used to transfer value.
One technique involves selling an interest in a corporation, limited liability company, or partnership to a trust or outright to the family members, if desired, in exchange for a note. As of December 2008, the applicable federal rate on a note of less than ten years was 2.85%. Using a nine year interest only balloon note, all earnings over the next nine years in addition to appreciation of the business in excess of 2.85% is shifted to the heirs without any estate or gift tax consequences.
Congress’s Frontal Attack on FLPs and the Related Discounting (The Window of Opportunity is Closing).
Included in the legislation currently in front of Congress is H.R. 436, a bill introduced to change estate tax law. While it has not garnered the media attention of some other proposed legislation, it could significantly alter your estate planning opportunities. One of the provisions of this bill would eliminate the ability to discount the valuation of certain family limited partnerships (FLPs) and other passive assets when based on minority ownership and limited voting rights. As the legislation is currently drafted, the effective date is for transfers after enactment. That means that the opportunity to transfer business interests in order to take advantage of these discounts and opportunities is now.
Contact Us for More Information.
Would you like to learn more about how to maximize your estate planning opportunities and take advantage of this opportunity?
Our firm is based on building strong relationships and connecting with our clients – to make sure that no opportunities are missed. Please contact Barry Schimler (bschimler@bspj.com) 678.741.2510 or Marshall Schwartz (mschwartz@bspj.com) 678.741.2524 with questions about steps you can take to maximize your opportunities for tax savings.
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