Control your wealth, yet disinherit the IRS.Almost all consulting clients we work with have two common objectives: (1) keep control of their business and other asset for as long as they live; and (2) disinherit To cut off from an inheritance. To deprive someone, who would otherwise be an heir to property or another right, of his or her right to inherit. A parent who wishes to disinherit a child may specifically state so in a will. disinherit v. the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. . Typically, they think accomplishing both objectives is the impossible dream. Not true! If you know how, both objectives can be easily accomplished. Let's use a simple example. You have a 12-year lease on the land and building in which you operate your business, plus you have six five-year options. So you can control the real estate for almost half a century, but since you don't own the real estate, it will never be included in your estate. It's a wonderful experience to watch the eyes of our clients light up when we explain how they can keep control of different types of assets, yet still legally escape the tax collector. Let's look at the most important assets that the typical reader owns. Your Business: Recapitalize your corporation into voting stock Voting stock The shares in a corporation that entitle the shareholder to vote. voting stock Stock for which the holder has the right to vote in the election of directors, in the appointment of auditors, or in other matters brought up at the (say 100 shares) and non-voting stock (say 10,000 shares) in a tax-free transaction. Give the non-voting shares to the younger generations of your family. You have absolute control (own the voting stock), but the ownership and taxable value (the non-voting stock) is out of your estate. Your Residence: Transfer your residence to a qualified personal residence trust The following article on personal residence trusts and qualified personal residence trusts is taken from attorney Jacob Stein's treatise on tax planning, with his permission. (QPRT QPRT Qualified Personal Residence Trust QPRT Quinolinate Phosphoribosyltransferase ). After the term of the QPRT (typically from 5 to 15 years), the residence is permanently out of your estate. During the term of the trust, you continue to live in the residence just as if the trust did not exist. After the term of the trust is over, the trustee (most likely you would be the trustee) would lease the residence to you at a fair rental, providing more tax savings, because each dollar of rent comes right out of your taxable estate Taxable Estate The total value of a deceased person's assets that are subject to taxation - minus liabilities and minus the prescribed tax-deductible portion of assets left behind by the deceased. . Since your kids will be the beneficiaries of the QPRT, they will wind up with the house and all those rental dollars - tax-free - and you have control for as long as you live. Other Assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. : These include all income-producing and investment assets you own, for example, stocks (other than your closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people. In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist. business), bonds and real estate. You transfer all these assets to a family limited partnership (FLIP) - a tax-free transaction. You become the general partner (like owning the voting stock) and give the limited partnership interests (similar to non-voting stock) to your children and grandchildren. Results: You have control, but not ownership. The above discussion only scratches the surface of how you can have your cake (control) and eat it to (conquer the tax collector). Every type of asset you own can enjoy the benefit of similar control/tax-escape techniques. If you want to talk about your particular assets and special circumstances call Irv Blackman or Brian Whitlock at (312) 207-1040. |
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