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Estate, gift planning can ease asset transition

Posted online

by Gary V. Garwitz

for the Business Journal

When you, as well as other business owners, begin to think about estate and gift tax planning, your Þnancial goals might include:

?Transferring the ownership and management of your business, according to your wishes, with as little disruption as possible.

?Minimizing income, estate and other transfer taxes associated with your business and personal property.

Taking the Þrst step. There are several ways for you to achieve your goals. The Þrst step is to consider how you want your estate distributed after your death. What are your goals and priorities?

Sometimes estate and gift tax issues are straightforward, other times they are quite complicated. Regardless of your situation's complexity, without properly structuring your plans now and making them known to your heirs and key business associates your wishes may not be carried out.

Understanding estate and gift taxes. The federal gift tax applies to taxable gifts you make during your lifetime. The person or married couple giving the gift is primarily liable for paying taxes on gifts.

The federal estate tax applies to property you own at your death. This tax is usually paid by the estate rather than by the beneÞciaries.

Techniques to minimize estate taxes. If you have made no lifetime taxable gifts, you can transfer up to $625,000 ($650,000 in 1999) worth of property or money to any number of beneÞciaries without incurring federal estate tax liability. And with proper planning, you also may transfer an unlimited amount of property and money to your spouse, which is not subject to any federal estate taxes either.

You will need to determine the likely size of your estate, including the fair market value of your business, and the extent to which you wish to allocate your estate between your spouse and other beneÞciaries. The results of the calculations will determine additional planning techniques, such as the use of lifetime gifts to reduce your total tax liability.

You also will need to determine if you qualify for the family-owned business exclusion. The law in this area is very complex, but generally an estate exclusion is provided for "qualiÞed family-owned business interests" up to $1.3 million.

Tax-free gifts. Not every gift is taxable. Under current law, you may give $10,000 in cash or property per donee per year (or $20,000 for a married couple) without generating gift tax liability and without affecting the $625,000 that is free from estate taxes.

Other nontaxable gifts include certain medical or educational expenses that you pay on behalf of others, such as children or parents.

More tax-saving techniques. Depending on the complexity of your Þnancial affairs, other techniques to minimize taxes include:

?Revocable and irrevocable trusts

?Life insurance trusts

?Family limited partnerships

?Generation-skipping transfers

?Buy-sell agreements

?Charitable trusts

Remember, if you want a say in the future of your business, create an estate plan with your Þnancial goals in mind, and then make your wishes known to those who will carry them out.

(Gary Garwitz is a CPA and partner with the SpringÞeld ofÞce of Baird, Kurtz & Dobson, certiÞed public accountants.)


Without properly structuring your plans now and making them known to your heirs and

key business

associates your wishes may not be carried out.[[In-content Ad]]


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