Business Succession Planning and the New Gift Tax Exemption

Clients with businesses who want to take advantage of the new gift tax exemption should start planning now. Owners who would like to pass on the business but also need to use it as a form of retirement income have several options:

• Owners can upgrade company retirement plans, enabling themselves to put more money away for retirement.
• Owners can purchase the building the company rents. They can lease it back to the company for a source of retirement income.
• Owners can establish a profit-sharing or defined benefit pension plan.
• Owners can continue working as a salaried employee, chairman, or consultant. Owners who didn’t pay themselves what they were worth may be able to recover “lost wages.”
• Owners can establish salary continuation plans. For IRS approval, such plans should be established long before retirement and pay reasonable amounts.
• Owners can sell shares to a defective trust for the benefit of their descendants. If structured properly, the owner won’t owe capital gains tax on sale proceeds, which can be used to fund retirement.

See Anne Tergesen, Family Businesses Catch a Big Break, W.S.J., Feb. 19, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.