In the traditional estate planning model, transfer of cash, marketable securities, and other “non-business” assets to a family owned, limited liability partnership or company for purpose of gift or fractional distribution, held the benefit of valuation discount and proportional taxation.
On September 27, 2021, the U.S. House Congressional Ways and Means Committee affirmed the Build Back Better Act (2021/2022), outlining a plan that will directly impact gift and estate planning tax. The pending legislation potentially eliminates former valuation discounts on nonbusiness assets. With new rule changes, planners will be looking for opportunities to enhance estate value. If valuation discounts disappear, transfer of legacy business assets and private shares to trust ownership, may become more popular.
A portfolio of business assets can significantly enhance the value of an estate trust for an owner(s) and beneficiaries while the former is still living. For example, an estate owner may elect to disburse interest income from convertible stock assets to a safe-haven investment vehicle, or for purpose of end-of-life planning. For this reason, it is not uncommon for an estate to exchange trust-owned value for alternatives with higher earnings if the market presents a better option.
When a business owner or shareholder is setting up an estate, transfer of a business and its share value as part of a trust, is an opportunity to enhance wealth. Once transferred, the Executor or Trustee has the power to continue legacy business operations, or alternately sell its shares. Trust-owned businesses can also surrender or cancel, and reissue privately held company share contracts if there is at any point in time a redesignation of the estate’s trustee(s).
The U.S. federal Internal Revenue Service (IRS) designates estate trusts as taxpayer entities, responsible for filing income tax returns under a separate tax identification number. Trustees are responsible for trust tax filing. IRS rules for the tax treatment of trust-owned legacy businesses, allow for joint tenant transfer of those accounts to a spouse with tax-free marital deduction exemption. The disbursement of trust assets to final beneficiaries after its owner(s) have died, is subject to taxation based on individual income reporting of estate income.
There is a 10-year statute of limitations for transfer of estate held stock assets for voting trustee shareholders (BSC § 621 (a)). Probate administration of a voting shareholder assets by an estate fiduciary, requires disclosure of shareholder earnings to the IRS. A licensed attorney at law specializing in estate law can advise of the benefits of trust-owned, legacy business transfer.
Business transfer is a model of trust incorporation that enables an estate owner and its beneficiaries to capitalize on future earnings, while lessening tax effect. Depending on the state jurisdiction and registered status of a business (i.e., corporation, partnership, or sole proprietorship), assets can be transferred to one or more estates. In some U.S. states like New York, estate laws permit transfer of entity’s share value to a trust BSC § 621 (a)(b)(c)(d) Estate executors and trustees are in fiduciary oversight of shareholder voting privileges connected with a trust-owned business.
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