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Transferring Your Family Business
Perhaps you have children or other family members who wish to continue the business after your death. Obviously, you’ll want to transfer your business to your successors at its full value. However, with income, gift, and potential estate taxes, it takes careful planning to prevent some (or all) of the business assets from being sold to pay them, perhaps leaving little for your beneficiaries. Therefore, business succession planning must include ways not only to ensure the continuity of your business, but also to do so with the smallest possible tax consequences. |
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Grantor Retained Annuity Trust (GRAT)
A transfer of property to an irrevocable trust is a taxable gift. The value of the gift on which gift tax is imposed is generally its fair market value. However, because the grantor retains an interest in a GRAT, the value of the transfer is discounted; gift tax is imposed only on the remainder interest (and any gift tax due may be sheltered by the grantor’s $1 million lifetime gift tax exemption). |
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Planning for Succession of a Business Interest
A grantor retained unitrust (GRUT) is an irrevocable trust into which a grantor makes a one-time transfer of property, and in which the grantor retains the right to receive a variable amount of principal and interest (based on a fixed percentage) at least annually for a specified term of years. At the end of the retained interest period or upon the death of the grantor, whichever is earlier, the property remaining in the trust passes to the remainder beneficiaries or remains in trust for their benefit. |
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