Smart business owners can use the $10,000 annual gift tax exclusion as a highly effective way to pass along substantial blocks of equity in their businesses to their heirs and beneficiaries with no estate or gift tax at all. As is true in almost every tax planning area, the sooner you start to do this, the greater the results that can be obtained. This is an excellent tax-saving concept, especially if it is used early and often during the formative years of a business’ development.


Some $8-trillion to $10-trillion of wealth in the United States is expected to change hands over the next 20 years. As owners of businesses started after World War II now exit their companies because of death, disability or retirement, careful succession planning is essential to maximize the percentage of this wealth that actually passes on to their heirs and beneficiaries.

Succession planning involves some reasonably sophisticated corporate and tax planning to ensure the most effective transfer of business assets from generation to generation. By establishing a written succession plan now, developed by a professional, you are assured of departing from your business someday with as much wealth as you can and with the knowledge that the business will continue after you have reduced or eliminated your daily involvement. Using the $10,000 annual gift tax exclusion to transfer business assets also means that future appreciation in their value becomes the tax responsibility of the recipient, presumably a younger person in a lower tax bracket than you.

Similarly, if the $600,000 lifetime estate and gift tax exclusion is used during the business owner’s life to transfer a substantial block of equity to the younger generation, any future value enhancement of that equity avoids taxation in the owner’s estate. In addition, significant discounts can become available with gifts of minority interests in family businesses, including real estate holdings. Once the $600,000 exemption is consumed, the incremental tax rate on your assets after your death begins at 45 per cent for Federal taxes and in most substantial estates become subject to a 50 per cent or greater estate tax among the stiffest tax burdens presently existing. With these substantial estate taxes to pay and without a workable succession plan in place, survivors often are forced to sell your business at a distressed price to raise money quickly. That’s why anyone with significant assets should be meeting now with their attorneys, accountants, insurance agents and investment advisors their succession planning team.