Window of Opportunity for Business Succession Planning

July 2011Articles New Jersey Business

The 2010 Federal Tax Act created a short window of opportunity for business owners to plan for business succession from senior to junior family members. The 2010 Tax Act increased federal gift and estate tax exemptions to $5 million ($10 million for a married couple), but only until December 31, 2012. Exemptions after that date are reduced to $1 million ($2 million for a married couple). While Congress can modify the scheduled reduction before 2013, there is currently no consensus, creating uncertainty after 2012. The next 18 months thus provide an unusual opportunity to transfer $5 million to $10 million of business value without incurring the gift tax.

Assumed facts: A father, 60 years old, owns a successful business valued at $10 million in which his son, age 35, is employed. The father will retire in a few years and wants to transfer ownership to his son. Assume the business doubles in five years to $20 million, resulting in combined federal and state estate taxes of $7.2 million.

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