..........When its time to move on

publication date: Apr 21, 2009
author/source: Jim Counts
When it's time to move on, continued

I'm proud to say that I'm not a lawyer, so I suggest that you to get an estate planner involved in your actual plans.

I don't think it is equitable or fair for parents to give their business to their children anymore than I think it's fair to expect the children to support parents in the lifestyle they would like to become comfortable with.  Everyone works harder to care for the things they had to work to get.  So how do we keep a reasonable balance?  There are several ways which I have seen work quite well.

One it the private annuity:  It basically assures the parents a set amount per month for the balance of their life and when they pass away the payments simply stop and the business is not part of the parent's estate.  This is legal and approved by the IRS as a means of transferring assets to children.  This is a very good way to handle the transfer is there is a sibling who is always around with their hand out because it keeps the business out of the estate. He is a link which explains it more thoroughly. http://www.assetprotectionbook.com/private_annuity_petrucelli.htm


Another option would be for the parents to take a note from the child to pay off an agreed amount for the business.  However, if the note is paid off before the parent's death the payment stop and the parent live off their savings or investments.  If they pass away before the note is paid off the balance goes to the estate to be divided as the parents set forth or as the courts decide in the absents of a will.  This is much more equitable than the child paying what is usually the equivalent of a payment only to own nothing.  One disturbing nuance to this is the parents keeping the land the business is on and collecting rent for the balance of their life and then placing the land in their estate.  On a personal note, I question the value of a business when you don't own the land and may be at the whim of siblings or in-laws when the estate is to be settled.

There are trusts which allow the parent to receive income from the business as long as they live and then pass the business on to the selected person thru the trust.  A good financial planner can be a big help here.

Some parents have sufficient assets that allow them to gift the stock of the business to the child.  There are government limits on the amount which can be gifted each year, but it is tax free. 

My least favorable method it for the person who is running the business to have to pay the parents for the rest of their life and then the business become part of the parent's estate.  Now the child has to turn around andpay the government to own the very business they have been paying for all these years.   That's if someone else in the family doesn't decide to contest the will and force additional concession from the person running the business.

My main point is that both the parents and the managing child or children need to have a plan and that plan needs to be fair, equitable and legal.




Jim Counts

Copyrighted 2009.           All rights reserved.

All information is copyrighted by Jim Counts of Counts Consulting, Ltd.