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ESTATE PLANNING
S-10 NOVEMBER 14 - 20, 2011
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BUSINESS ESTATE PLANNING
IMPORTANT BUSINESS M AT T E R S TRUSTED ADVISORS TO INDIVIDUALS AND BUSINESSES ON MATTERS INVOLVING: Estate and Trust Administration Estate Planning Succession Planning
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Business owners looking for sale can benefit from charitable giving sales. Planners must consider: ■The donor’s effective tax usiness owners anticipating rates in the year of an anticipated sale, and in the preceding and a sale often wish to satisfy succeeding years; charitable objec■Whether an intended tives using part of charity is a public charity their new liquidity. The or private foundation; tax code rewards generosity ■Whether the busifor donors who plan ness being sold is a C corahead. poration, S corporation, The tax savings from a partnership or LLC; and, charitable contribution ■Whether the busidepends on the donor’s ness will sell assets and effective tax rate, the type PETER IGEL liquidate, or whether it of business interest and will sell equity. the type of charity. Gifts of stock Presale gifts to charity tend to made ahead of a potential sale work best when C corporation allow a double benefit of claiming stock is contributed to public a contribution deduction and also charities, and when a donor has avoiding reporting gain on the some ordinary income to be sale. Charities are tax-exempt on offset by the charitable deducmost income, but could report tion. “unrelated business income� on If a donor anticipates signifiS corporation stock sales or on cant capital gains, contributions passed-through income from asset
By PETER A. IGEL Angela G. Carlin
Karen A. Davey
Jerrold L. Goldstein
Jeanne V. Gordon
Gary W. Johnson
Eugene A. Kratus
Samuel J. Lauricia III
Shawn W. Maestle
Paul Y. Shapiro
Joseph B. Swartz
4HE 4OWER AT %RIEVIEW s %AST th 3TREET 3UITE #LEVELAND /HIO TEL s FAX 7EST "ROAD 3TREET s 3UITE s #OLUMBUS /HIO TEL s FAX #HAGRIN "OULEVARD s 3UITE s "EACHWOOD /HIO TEL s FAX
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Peter A. Igel is a partner in the tax group at Calfee, Halter & Griswold LLP. Contact him at pigel@calfee.com or (216) 622-8311.
Proprietors should consider employee stock ownership By MICHAEL MATILE
T > Estate and Business Planning > Estate and Trust Administration > Business Law > Life Care Planning/Elder Law
might be better in the year before or after a sale, so that the charitable deduction will shelter income taxed at higher ordinary income rates. Post-sale gifts are usually advisable when a donor holds S corporation, partnership or LLC interests because charities could incur significant unrelated business income in sale transactions. Thus, most sellers of pass-through entities participate in the sale and contribute sale proceeds later. Professional planning, early in the process, can guide a business owner through the thicket of issues to create a win-win result for the owners and their favorite charities. â–
here are a number of estate planning considerations for business owners thinking of selling their firms, and among the options are employee stock ownership plans (ESOPs), which can offer a number of benefits. An ESOP is a transition alternative for business owners to create personal liquidity and share ownership with their employees. Frequently thought of only as a succession planning solution, an ESOP also may deliver effective estate planning benefits before and, uniquely, after an ESOP transaction. For business owners who sell less than 100% of their stock to an ESOP, the time immediately following the transaction provides an opportunity to gift shares they still own at a reduced value due to the increased debt and temporary reduction in the company’s equity created as a result of the transaction. Depending upon the circumstances, some sellers may be able to defer capital gains taxes on the proceeds from the sale to the ESOP. The owners must reinvest
Crain’s Cleveland Business Custom Publishing
their proceeds within a year into qualified replacement property (QRP), which is defined in the Internal Revenue Code. And if owners hold the QRP until death, it escapes income taxation during their lifetime and also provides their heirs a stepped-up tax basis in the property upon death. Owners who wish to be charitable with their estate plans also may be able to transfer QRP to a charitable remainder trust without it being considered a disposition that would trigger gain. The trust does not pay tax when it disposes of the QRP, deferring the tax until the donor receives payments from the trust. Likewise, QRP holders may be able to transfer it to a grantorretained annuity trust (GRAT) without triggering gain as a disposition. All in all, this may be the best time for business owners tackling estate and ownership-transition issues to consider an ESOP. â–
Michael Matile is a senior wealth planner for PNC Wealth Management. Contact him at (216) 222-5885. PNC Bank does not provide legal, tax or accounting advice.