Y O U R B U S I N E S S
For example, are your
children ready to take over, or will they need a few years of preparation while you continue to oversee the operations? How are you planning to fund your retirement? Will you need income from the business or even a lump-sum payout? And if one or more of your children don’t want to go into the family business, how can you ensure that all your heirs will get a fair share of your estate? There are several strategies
that can help you pass along your business effi ciently to the next generation. Here are four that can help you balance your family’s and your needs while making sure Uncle Sam doesn’t become the primary benefi ciary of your life’s work.
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Tax-effi cient strategies for passing your family business to the next generation
T
AXES ARE ALWAYS an important consideration when deciding how to transfer your wealth to the next generation. If most of your assets are tied up in a family-owned business, however, there are myriad other factors that must also be weighed, says Cameron Simmons, Senior Vice President of Regions Private
Wealth Management. “Passing on your business to your children can be very com- plicated,” Simmons says. “You need to think about not just what you want to do now, but also how it could impact the next generation, 10 or even 20 years down the road.”
12 R EG ION S I N S IG H T S SUMMER 2 015
INTRAFAMILY LOANS: Today’s low interest rates make this a great time to consider this option, Simmons says, thanks to the applicable federal rate (AFR). Every month, the Internal Revenue Service sets the minimum interest rates for loans made between family members that won’t be counted as taxable gifts. In June 2015, the rate for a long-term loan — anything over nine years — was 2.5%.1
So you could
lend your children the money to purchase the business (at its fair market value, of course) using an interest-only loan for, say, 20 years, with a balloon payment at the end. The bonus? No points or closing costs, with the appreciation in excess of the AFR passing tax-free to the next generation.
PHOTO: WAVEBREAK
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