Although the actual process of transferring a corporation to your heirs may be relatively easy, choosing a method of transfer and evaluating the ramifications can be difficult. Before you begin, you should meet with your heirs and your accountant to explore your options for transferring your corporation.
Although you may wish to leave your corporation to all of your heirs, it is important to consider management roles prior to transfer to avoid power struggles. Some of your heirs may decide that they do not want to take part in managing the company. Consider giving managing heirs the opportunity to purchase stock in the corporation from non-managing heirs when you pass the corporation. Alternatively, consider giving non-managing heirs a cash inheritance rather than a stake in the corporation.
Before transferring your corporation, you should know it's precise value. You'll need to perform a thorough valuation of your corporation. This step is often overlooked when transferring a corporation to heirs. The exact value of your corporation prior to transfer is important for tax purposes and for accountability purposes.
There are three major methods that most individuals use when transferring a corporation: A corporation may be transferred as a gift prior to death, through a sale, or through a trust or will. The size of your corporation and the amount of income it generates will create different considerations concerning its transfer. You should meet with an estate planning attorney or an accountant who works in corporate governance prior to passing the corporation to determine what method of transfer will be most beneficial.
Method of Transfer
If you decide to pass your corporation to your heirs as a gift or through your will, you could incur substantial gift taxes or estate taxes. If your corporation is relatively small in size, you may be able to gift it to your heirs in increments and subsequently avoid having to pay gift tax. As of 2011, you may transfer up to $13,000 in gifts in one year without having to pay gift tax. Depending on the type of stock issued by your corporation, you may also consider transferring your corporation through a revocable trust, an irrevocable trust or a charitable remainder trust. The considerations for transfer will vary greatly depending on your circumstances.
After the Transfer
Following the transfer of the corporation, it is important to update any legal and financial documents related to the corporation. You may also need to contact your attorney to have your articles of incorporation updated to reflect the change in ownership. Finally, you may consider purchasing a "key man" insurance policy for the new managers; this type of policy works by paying the business for losses that can result from the death or disability of the person specified in the policy.
- MB Financial Bank: Passing the Business to Heirs
- Kiplinger: Passing on the Family Business
- The Law Donut: Passing Your Business on to Your Family: 18 FAQs
- Tarlow, Breed, Hart and Rodgers: Pass Along Your Family Business Through Gifting
- Business Know How: Passing Your Business to the Next Generation
- Entrepreneur: Passing Your Business To Your Heirs
- Market Watch: How to Avoid the IRS Gift-Tax Trap
- Lawyers.com: Putting Stock into a Trust
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