Gift and Estate Taxes

Gift and estate taxes. The owner may die some day. The heirs probably would benefit by having a credible idea of what the business is worth. If the business is substantial, there may be estate taxes. Knowing what the business is worth can assist the owner in arranging adequate liquidity (usually through life insurance) to cover the estate taxes. The owner may want to minimize or avoid the estate taxes through a program of gifting shares of stock to eventual heirs.

For an estate or gift tax return, the business value or the ownership interest value should be supported by a qualified business appraiser, and the appraisal report should be a complete report that complies with the Uniform Standards of Professional Appraisal Practice (USPAP). The standard of value for estate and gift taxes is always fair market value, as defined in the Internal Revenue Service Regulations.

If one wishes to pass the company to heirs while minimizing estate and gift taxes, one should do so by means of a series of gifts of minority interests. Minority interests under the standard of fair market value are valued at a substantial discount from a proportionate share of the business as a whole. Every gift is valued on its own, without regard to the holdings of the donor or donee. If a donor has three heirs to whom he wishes to pass the company, he could even give them 33 1/3% interests all at the same time, and each would be valued as a minority interest.