Protecting value for future generations or philanthropy
The 2017 nearly doubled the federal estate and gift tax exclusion amounts. $11.18 million per person; $22.36 million per married couple. The purpose of the exclusion is to allow wealth transfer to heirs without taxation. These new amounts along with significant valuation discounts on shares of privately held companies allow business owners to avoid nearly $30 million in value. Otherwise, transfers to future generations could be taxed at a 40% rate. Without savvy planning, businesses often need to be sold to pay the taxes and could end a legacy.
Timing is everything. The doubled exclusion amounts expire for gifts made/deaths after 2025. The upcoming Presidential election in 2020 could impact control of Congress and change the White House; this window of opportunity could change after that.
Protecting value for future generations can be enhanced by using trust structures. When you apply generation-skipping transfer (GST) tax exemption to the gift, you can be certain that assets within the trust will not be wealth transfer-taxed at any generational level.
The Ohio Legacy Trust Act allows an owner to be beneficiary of the trust and remain eligible for distributions. It’s also permissible to make non-voting share gifts to the trust so that the owner doesn’t lose any current control of the company.
A grantor-retained trust can be beneficial for owners who make signification distributions or pay dividends.
A charitable lead unitrust can apply an upfront GST tax exemption to protect company shares across multiple generations.
Owners interested in freezing the current value of their company can use a Legacy Trust or irrevocable trust as long as the trust contains significant seed money. The owner effectively hold an interest-bearing note that’s payable over time (usually many years).
It’s imperative that business owners seek qualified counsel regarding both financial and legal matters. An attorney who has experience with estate planning can provide valuable assistance, advise against potential pitfalls, and secure a legacy for you and your family.
If you are unsure where to begin, contact us for a free consultation with an experienced lawyer who can review your situation and advise you regarding your options. The attorneys of Godbey Law can help you develop or fine-tune a customized estate plan that will protect your family, safeguard your assets and provide important tax protections.
*Please note that Godbey Law does not provide financial planning or tax advice. Please seek advice from a qualified financial planner, CFP, CPA or other professional. Godbey Law provides legal counsel to its clients only. This article and the information contained herein should not be considered legal, tax, nor financial advice. THIS IS AN ADVERTISEMENT.