Post By: Dana Sunderlin
Estate tax can become a tremendous burden on ones beneficiaries, but with proper estate planning much of the burden can be reduced. For more information, read the following article from JD Supra by attorney John C. Martin.
California business and property owners often hold strong values and wish to keep their assets in the family or preserve their business as a legacy. If the business or land is worth more than a few million dollars, tax liabilities may make this goal impossible without some advance planning. Here are three strategies business owners should be aware of.
1st Strategy: Thinking Outside the Box on Annual Gifting
Consider the case of a father and vineyard owner in Saratoga, California. The father’s largest asset was his Saratoga land and vineyard, worth approximately $6 million. He was worried that upon his death, his two daughters would be forced to sell the vineyard in order to pay the estate tax. He sought the advice of an estate planner, who created a plan to save taxes in order to keep the vineyard in the family. Over the next 20 years, the father made gifts of shares of the vineyard equal to the annual gift tax exclusion amount (for 2009, this would be up to $13,000 per year, per daughter). Upon his death, he had already gifted 53% of the value of the vineyard to his daughters. This resulted in what is called a “minority share discount valuation,” where a minority interest in a business, if sold, would go for less than a full interest. In the father’s case, an appraiser “discounted” the vineyard by 20%. By implementing this plan, the two daughters saved a substantial amount in estate taxes and were not forced to sell the vineyard.
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