Legal Question in Wills and Trusts in Washington

Re: Tax-Free Transfer of a Business

It is certainly possible to transfer the business to his grandson at 30 years of age. The business could simply be placed in trust until that time with specific directions to the Trustee with respect to the assets of the trust -- specifically, the business.

The more interesting question is the avoidance of estate tax. Ignoring, for the moment, that a small, family-owned business is involved, a bequest of $6,000,000 is subject to federal estate tax (at upwards of 50 cents on the dollar). However, thanks to the recent 2001 tax relief act each individual is given an exemption that will slowly rise to $4,000,000 by 2009. In 2010 there will be no federal estate tax due (very good news). However, the bad news is that there is a sunset provision in the act that will toss the estate tax exemption from unlimited back to $1,000,000 in 2011. Therefore, unless the owner dies sometime in 2010, estate tax may indeed be owed.

Family-owned businesses can utilize a larger estate tax exemption if certain criteria are met. However, I believe the size of the business would surpass even that exemption. Finally, the grandson will have to deal with generation skipping taxes and possible exemptions to those taxes if he is to receive the business. Each of these issues could take up a law school semester. So....while this will sound cheesy, I strongly suggest that the business owner contact a qualified attorney AND accountant to discuss these tax-related issues. The potential estate tax savings will be WELL worth the effort.