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Annual gifts: One part of a Colorado business succession strategy

Lifetime gifts can play an important role in estate planning. In 2015, the federal gift tax exclusion remained at $14,000 per donee. A couple with three children could give each child up to $28,000 in 2015 without tax consequences.

Only about one-third of family-owned companies survive a transition between generations. In a past article on the basics of Colorado business succession planning, we offered general ideas designed to smooth the transition. Annuals gifts can be part of a tax planning strategy.

How can annual gifts play a role in business succession?

Assume a young couple, John and Ellen, have spent decades perfecting recipes and building a following for an artisan sausage business in Denver. It started as something new, but then became a fixture over the years and the three children grew up working in the business.

Succession planning needs to answer basic questions. Do the children want to be involved in the business? How and when should a transfer or sale of the business occur?

If the children are interested in running the business, lifetime gifts may facilitate a transfer. The federal estate tax exemption is $5.43 million in 2015. If each of the siblings received equal shares valued at $3.5 million when the last parent died, a portion could be taxed as a rate up to 40 percent. However, if the parents were able to make annual lifetime gifts of $28,000 in shares to each child it would reduce the tax owed on the remainder of the gift.

Long term gifting programs can be appealing based on your circumstances. As the example illustrates, these approaches need to be carefully considered and require advance planning. The advice we offered to close the article is worth repeating. Speak with a Colorado estate planning attorney for personalized guidance in creating a business succession plan.

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