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With a exemption on the first $22 million gifted to your brother by your parents after the surviving spouse dies, I don't think this fits the definition of "sma

by ghouse 9y ago

With a exemption on the first $22 million gifted to your brother by your parents after the surviving spouse dies, I don't think this fits the definition of "small" or "in the middle."

logfromblammo 9y ago
Incorporate the business. The parents as the majority owners on the board elect the brother as CEO. The brother appoints siblings to executive positions. The executive salaries include stock grants. The company then trades shares of stock for life annuities of equivalent present value. Essentially, the company starts a pension plan for its owners. As long as they still live, the parents take pension payments, in lieu of dividends or distributions, and the kids gradually build up equity by "working" in their executive positions. The pension benefit appears as a liability on the balance sheet, depressing on paper the basis of the privately-held company stock. When the parents die, their beneficial interest in the form of the life annuity is terminated immediately, without any intervention by an executor or probate judge. That cash flow from the company is now freed up for dividends. The value flies from the present value of the life annuity to the stock price of the company that no longer has to pay it, just as the last breath leaves the body, so fast that the taxman cannot catch it. The kids will realize a capital gain if they ever sell their stock, and will see a rise in dividend income going forward. This increase in wealth would be the same size as a normal inheritance, but does not trigger taxation until they sell the stock, and avoids estate taxes entirely. Income tax is paid quarterly. This is fine. The estate tax earns the government no revenue. It served its purpose by encouraging the elder generations to yield their power over the family businesses before they die.

by ghouse 9y ago

With a exemption on the first $22 million gifted to your brother by your parents after the surviving spouse dies, I don't think this fits the definition of "small" or "in the middle."

logfromblammo 9y ago

Incorporate the business. The parents as the majority owners on the board elect the brother as CEO. The brother appoints siblings to executive positions. The executive salaries include stock grants. The company then trades shares of stock for life annuities of equivalent present value. Essentially, the company starts a pension plan for its owners. As long as they still live, the parents take pension payments, in lieu of dividends or distributions, and the kids gradually build up equity by "working" in their executive positions. The pension benefit appears as a liability on the balance sheet, depressing on paper the basis of the privately-held company stock. When the parents die, their beneficial interest in the form of the life annuity is terminated immediately, without any intervention by an executor or probate judge. That cash flow from the company is now freed up for dividends. The value flies from the present value of the life annuity to the stock price of the company that no longer has to pay it, just as the last breath leaves the body, so fast that the taxman cannot catch it. The kids will realize a capital gain if they ever sell their stock, and will see a rise in dividend income going forward. This increase in wealth would be the same size as a normal inheritance, but does not trigger taxation until they sell the stock, and avoids estate taxes entirely. Income tax is paid quarterly. This is fine. The estate tax earns the government no revenue. It served its purpose by encouraging the elder generations to yield their power over the family businesses before they die.