Conceptually, making a plain bequest from you to your children is simple. However, in reality, there is more than meets the eye. The business owner must consider (i) the types of assets the business has, and its financial resources; (ii) the personality and family dynamics of the heirs; (iii) whether the assets are marketable; (iv) the business owner’s need for cash flow during retirement (and that of his/her spouse); (v) the number of successor owners (and their relationship); (vi) what sorts of incentives
When estate taxes are an issue, the estate planner should consider (1) techniques that result in valuation discounts (for example, for lack of marketability or control), and (2) timing techniques. Both of these techniques to strategically transfer a business’s value from one generation to the next with the lowest transfer tax burden can be combined to get the most beneficial outcome for the business owner (transferor).
A simple example of a technique utilizing a valuation discount is taking one spouse’s separate property and changing the title to community property. Since both spouses must consent to sell a community property asset, a small valuation discount could be applied to argue for a lower fair market value for the asset than would be achieved if the asset were valued as separate property.
A simple example of a timing technique would be to transfer title of an asset expected to substantially appreciate as a lifetime gift rather than letting the asset transfer at death after it has highly appreciated.
