Business Gifts
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Small business owners can shift ownership to other family members and reduce the size of their taxable estate by transferring to them gifts of stock in the business. The savings on estate taxes could be substantial. For 2007, the federal estate tax rate for the “first dollar over $2,500,000” is 45 percent.
Gifts of stock directly to your children fall within the $12,000 ($24,000 per couple) annual exclusion rule. You and your spouse can transfer $24,000 of assets each year to each child. For example, a total of $24,000 can be transferred to two children, for a total of $48,000, without paying federal gift taxes or eating into the lifetime exemption. Further, as a closely held business, you may be able to take certain valuation discounts - and save on transfer taxes - when making gifts of minority interests in your company. The discount is a recognition that a minority interest may be worth less because of the lack of control and marketability inherent in minority ownership.
So, for instance, you might give away a small stake in your family business to your daughters each year and discount those shares by 30%. That means you could give them a stake with a face value of $17,140 per year, discount it 30%, and still remain under the $12,000 annual exclusion limit. Remember too, making this gift of stock removes the value of the gift and all its future appreciation from your estate. Thus, a $12,000 share in the business you give away today might grow to $100,000 in twenty years, a substantial increase that escapes future estate taxes at your death.
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