Many families have developed significant wealth in closely held small businesses. Historically, it has been difficult to transfer these small businesses because of the relatively low gift tax exemption available to the person or persons making the gift. For 2011 and 2012 the unified gift and death tax exemption is $5 million per person. Therefore, a husband and wife can transfer up to $10 million without paying gift tax.
Assuming you have a personal comfort level, now is an advantageous tax climate to consider transferring a part or all of the closely held family business. Such a transfer will serve to lock in the use of some or all of your $5,000,000 exemption regardless of whether or not this exemption amount is reduced at a later date. Additionally, your family will benefit from getting the future appreciation of the business interest out of your estate.
You will have to review the capital gains tax issues related to such a transfer with your tax advisors. You will also have to explore the options of gift recipients. For example, should you make the gift of business to individual children or into trusts for the benefit of the children. The trusts could serve to provide heightened creditor, divorce, and asset protection as well as the opportunity to use the Generation Skipping Transfer Tax Exemption.
The 2011 and 2012 tax laws provide unprecedented flexibility when considering lifetime planning. Please take the time to sit down with your advisors to determine if there are planning opportunities available to you that could ultimately provide significant family tax relief.