If part of your wealth lies in the ownership of a business, then you may be looking for how to pass on that business to your loved ones. This is especially true for businesses such as rental and real estate holding companies and others that require less management to generate income. For many business owners, their retirement plan is selling their business to an outside party or family member is how they plan to generate retirement income.
Transfer the Business as a Gift
If you transfer the business during your lifetime, you can do so as a gift and can continue to draw income from the business as your family runs the operations. There is a lifetime estate and gift tax exemption of $22.8 million dollars for married couples (it goes up yearly from inflation), so if your business is valued at less than this amount, you can structure a gift over time without being concerned with tax issues. Note that if you give a business valued at $20 million to your children, then they will have to pay estate taxes on any portion of you and your spouses’ estate that exceeds $2.8 million. Further, future growth of the company after you transfer it to the new owners won’t be considered part of your estate.
Moving a Business into a Trust
For certain types of businesses, putting the assets into an irrevocable trust can be a useful way to transfer to the next generation. An asset-heavy business such as a large farm that is mainly leased out takes fairly little work to maintain but generates a regular profit. You can put the assets into the trust during your lifetime and continue to manage and benefit from your work. At your death, you can assign your children or other loved ones as trustees and beneficiaries of the trust, transferring the business into their control.
Create a Limited Liability Company
Setting up a family LLC allows your heirs to become owners of the business, though they can be owners with only limited rights, initially. As the value of the business increases, the value of your children’s property increases along with it. You can transfer ownership of the business to them slowly, over time, in compliance with yearly gift taxes limits and set up for final ownership and control to vest upon your death.
Further, if you are the manager of the LLC and your family has only owners that have limited ownership and decision-making authority, then the value of their shares is discounted since they aren’t able to control the assets. This means that you can give significantly more shares than you would be able to otherwise. Setting up an organized and effective estate is a great way to take care of multiple family members, charities, and others you want to give to upon your death.
There are many different options that can be used to structure the transfers, so you want an experienced estate attorney to help you. At Dunn Law Firm, we take the time to get to know you and your specific situation in order to create a comprehensive estate plan that meets your goals. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.
