Question of the Week
What is the best way to transfer part of my company to my children? My company has realized substantial growth since I started it, and I anticipate this will continue over the next few years. I hope to sell the company in the next three or four years, and I would like my children to benefit from the sale.
If you are interested in removing some of the value of the ownership of your company from your estate for estate tax purposes, one technique is a Grantor Retained Annuity Trust or a GRAT. This is a particularly good time to consider a GRAT because you will be able to take advantage of a low interest rate environment. The IRS presumed rate of growth is at record lows and for May the rate is 3.2 percent per year.
Here is how the GRAT works: You will transfer a portion of the ownership in your company to a trust. The ownership interests will be valued at fair market value. You will receive from this trust a fixed amount annually - an annuity - for a period of years. The annuity amount will be paid from income to the extent income is available, and if insufficient, a portion of the property contributed will be returned to you. At the end of the period of years, your children will receive the assets left in the trust.
If the company is sold during the period of years, the fixed annuity payments can be made with a portion of the sales proceeds, and at the end of the period, your children will receive the sale proceeds that remain in the trust. If the company is not sold, the remaining business interests in the trust will be distributed to them.
For more information, please contact Jane Brown.
