When transferring your business to your children taxes often become a big costly issue. And who wants to pay high taxes?
One possible solution (there are quite a few if you plan in advance) you can use is to gift some of the business over to your children.
If you gift less than 50% of the business your children will not have control of the business. When your stock is not "control" stock it is less valuable than control stock. This fact is reflected in something called a minority ownership discount or lack of control discount.
For this reason the non-control stock will have less value than the control stock. For instance Company A is worth $1,000 and there are 100 shares outstanding. If you give 10 shares the pro-rata value would be $100. Yet the "discounted" value of those shares is likely to be $70 or $60 instead of $100. This fact in proper business situations can greatly reduce your gift and estate taxes.
This fact has been used in succession and estate planning for quite some time. Unfortunately it is one of the areas that the Obama administration has set out to change. But, the good news is that it appears that discounting will continue next year. After that - who knows - but these provisions will clearly be subject to change.
What this means is if you need to gift assets to your children and grandchildren as part of your succession or estate plan the best time to do it may be now.
We can help you either put together a complete team to assess your situation or take care of the valuation to support your decision. Contact me if you have questions or would like to start. For more info visit Harvest Associates website.