• 25
  • February
    2011

A tax deal approved by the US congress at the close of 2010 created an interesting window of opportunity for people planning to transfer wealth, such as relatives looking to pass down a family-business. The tax deal included a significant increase in the federal gift-tax exemption.

Before the new legislation, individuals could only make a gift of $1 million dollars without paying a gift-tax. Now individuals can gift up to $5 million dollars tax-free. Likewise couples can now give gifts up to $10 million dollars at no tax cost, whereas they previously faced a $2 million dollar cap. However, the deal may not extend beyond 2012, forcing many family business owners to make quick decisions regarding inheritance and estate planning.

A Wall Street Journal article uses the story of one Georgia family to illustrate how families who want to take advantage of the new gift-tax exemption must make long-term decisions regarding retirement and eventual plans to pass over the reins of their business.

In the article, the head of a Georgia family business is not yet ready to step down as CEO, yet plans to eventually transfer control of the company over to his sons. After talking with his family and reexamining his plans for retirement, the business owner decided to give his sons a large share of the company stock they would eventually inherit since he won't have to pay taxes on the gift. By transferring this wealth now, the Georgia business owner believes he can help his sons avoid paying a large estate-tax bill after his death.

It is always important for families and business owners to discuss their estate plan so they are well-prepared for the future. However, the 2011-2012 gift-tax exemptions provide an added incentive for families to have such conversations as soon as possible, in order to decide if they want to take advantage of the new legislation. An estate planning attorney can help create a comprehensive estate plan and ensure that current wills and trusts accurately represent a family's wishes.

Source: The Wall Street Journal "Family Businesses Catch a Big Break." Anne Tergesen, 19 February 2011