Estate Taxes

[Central Fl Cracker]

When her father died they paid a huge inheritance tax then they formed a coorporation with the Mother and 2 daughters. They are allowed to give so much stock out to family, kids etc. which will eventually delete all stock within the corp. and corp will dissolve.

 

[lakading]

When her father died they paid a huge inheritance tax then they formed a coorporation with the Mother and 2 daughters. They are allowed to give so much stock out to family, kids etc. which will eventually delete all stock within the corp. and corp will dissolve.

If you give out more stock, you'll have more stockholders. A corporation is not an estate planning tool. It is a business entity.

 

[Central Fl Cracker]

All I no is each year the IRS allows you to give a certain amount of money to your kids via stock or cash. They paid some high priced tax attorney to set this up and with me just being the husband ( 25 years ) I do not pose to many questions on how they did their estate planning.

 

[lakading]

All I no is each year the IRS allows you to give a certain amount of money to your kids via stock or cash. They paid some high priced tax attorney to set this up and with me just being the husband ( 25 years ) I do not pose to many questions on how they did their estate planning.

You have the gifting aspect correct. I think I may know what you're talking about. The mother is gifting her shares to the kids/grandkids in order to get the assets out of her estate. Once this happens, the kids/grandkids can disolve the corporation and distribute the assets, at which time they'll probably have to pay capital gains taxes. The mother however, wouldn't have to pay estate taxes since the assets were no longer hers.

 

[norriscathy]

All I no is each year the IRS allows you to give a certain amount of money to your kids via stock or cash. They paid some high priced tax attorney to set this up and with me just being the husband ( 25 years ) I do not pose to many questions on how they did their estate planning.

You have the gifting aspect correct. I think I may know what you're talking about. The mother is gifting her shares to the kids/grandkids in order to get the assets out of her estate. Once this happens, the kids/grandkids can disolve the corporation and distribute the assets, at which time they'll probably have to pay capital gains taxes. The mother however, wouldn't have to pay estate taxes since the assets were no longer hers.

Absolutely correct Lakading. Sounds like this was set up some time ago and should be checked out/updated as soon as possible. Depending on what the underlying assets are the kids could be getting hit with a large income tax bill. Cracker, under old law you could liquidate a corporation and pay no income tax; that is no longer the case, could be getting stuck with a hugh income tax bill to come when the stock is sold/liquidated .If the stock is left in the mothers name the kids will get a step up in basis at her death and pay no income tax. If this plan hasn't been looked at in several years you would be doing everybody a favor to get someone to review it.

 

[Central Fl Cracker]

It's a shame I had to sign a prenuputial agreement but after 25 years of marriage I figured Iron Pants knows I will be around a while.

 

[norriscathy]

Let me explain my self a little better! If you receive anything by gift, your tax cost is the same as the "giftor"; if you receive anything by inheritance, your tax cost is the fair market value of the property at date of death. Assuming the underlying asset in this corporation is land with an original cost of $50 per acre but currently worth $2000 per acre. By making gifts the stock/land does get removed from her estate, but your tax cost is the same as hers', $50 per acre. If it is left in the estate you receive a step up in basis to $2,000 per acre. A corporation is now probably the worst tool in the world to hold real estate! By giving you the stock you now only have a tax cost of $50 per acre, when the corporation is liquidated you will have to pay income taxes (not estate taxes) on the difference between $50 per acre and $2,000. Sometimes its a good thing to leave property inside of an estate and not gift it out.

Cracker, I would sure have someone look at this afresh. What was a great idea 10 or 15 years ago will now totally cook your behind.

 

[Arnold Ziffle]

It would be a good idea to find out if the corporation has an "S" election in place. Could possibly make for a big difference in total taxes paid by the corporation-family group combined. Potential double taxation in the case of corps that are not "S" corps; and also note that for non "S" corps there is no preferential tax rate on capital gains recognized by the corporation, whereas there would be for the individual shareholders picking up their share of an "S" corporation's capital gains from Schedule K-1.