The estate tax is current levied on estates with a net value exceeding $5,490,000 in 2017 or $10,980,000 for married couples. If your assets significantly exceed that amount, then your heirs could be in for a shocking tax payment on your eventual death. The estate tax is based on the value of the assets. Assume that you have a business, and you own 100% of that business. The estate tax is based on the fair market value of your business, which includes the going concern value of the business.
However, now assume that your business is divided between spouses and part of that business is gifted to your eventual heirs. Through this process you (individually) own 40% of that business. For a business worth $100,000,000.00 would you pay $40,000,000.00 for that interest in the business? Probably not because you would then own a minority share of the business that in most cases you could not liquidate. In such a situation you would discount the amount of money you would pay for a business for the lack of liquidity, and because of the minority ownership interest in the business. By properly structuring the ownership interest in the business, your $40,000,000.00 share of the business may be worth only $24,000,000.00 million dollars.
The tax on $24,000,000.00 is a lot less than the tax on $40,000,000.00 and this is what discount planning with entities is about in the estate planning process.
Obviously, this explanation is greatly simplified. To implement a comprehensive estate plan you need the guidance of an expert in Wills, Trust and Estates. Matthew A. Linde, Esq., is a Florida Bar Board certified expert in Wills, Trusts and Estates and would be pleased to assist you. For more information contact Cody & Linde, PLLC today at 239.939.7100.