A window of Opportunity

Last December 2010 the exemption from Federal Estate Taxes was increased from $3.5M to $5.0M.  Also at that time the lifetime Federal Gift Tax Exemption was raised from $1.0M to $5.0M through 2012.

There is a window of opportunity to take advantage of the $4M Federal Gift Tax Exemption increase through the end of next year (legislation does not specify beyond 2012, whether this exemption will remain or remain $5M.  In view of current economics in the US – I wouldn’t even speculate).  These benefits may encourage you as a business owner to consider looking at some exit and estate planning strategies to move more of your wealth to beneficiaries under these more favorable tax conditions.

Other considerations that may be beneficial to you at this time:

  • The valuation of your business may be less than previous at this time and thereby enabling you to transfer a greater % of your business under the cap.  There are allowable minority interest discounts that may expire in 2012 as well that may make this worthwhile.
  • Gifting your business to a family controlled LLP/LLC that enables you to take advantage of the tax window and still maintain control of your company.
  • Sale to an ESOP (Employee Stock Option Plan) and still maintain control.
  • Exploit the current low interest rate environment and consider potential benefits of a sale to a GRAT (Grantor Retained Annuity Trust) or IDGT (Intentionally Defective Grantor Trusts).

The above is but the tip of the iceberg, please do consider engaging a qualified estate planner to know all your options.

Engage a qualified exit planner too.  If you do not take control and carefully plan your exit strategy, plan the transfer of your wealth you can be quite sure that Uncle Sam has a plan for you and your heirs already in place.

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