Making small gifts of your business interests is an excellent way to benefit your estate. Through several simple methods, it is possible to reduce the amount of your estate tax while also supporting a cause and protecting your assets for the benefit of your heirs.

Can Reduce the Value of Your Estate for Estate Tax Purposes
Gifts made more than 3 years prior to your death are not included in your taxable estate. Gifts made over a long period of time can substantially reduce the business’s value in your taxable estate. You also may want to retain voting and management control of shares transferred. For pass-through entities, income is allocated to gifted shares.

Can Be Done Without Any Gift Tax
Gifts of less than $14,000 per recipient qualify for the annual done exclusion. Larger gifts can use the lifetime gifting exclusion of approximately $5.4 million. If you are married, gifts can be “split” with your spouse, effectively doubling these amounts. For Illinois residents, there is no gift tax in Illinois. It often makes sense to make gifts to ensure that your taxable estate is below the Federal limit, and also below the Illinois limit, currently $4 million dollars.

Can Be Made to Irrevocable Trusts for the Benefit of Heirs
You may consider making your gifts to irrevocable trusts, of which your heirs are the named beneficiaries. This provides that your gifts will only go to your heirs, while giving you an estate tax reduction. Additionally, your assets will be protected from creditors and heirs, and you can choose future trustees to manage these trusts. You may also set up distributions for your trusts, which can be tailored to serve each heir differently.

This option assures that assets contributed to such irrevocable trusts and the future growth of these assets is outside of your taxable estate.

Dividing Ownership into Smaller Shares can Impact Their Valuation for Estate Tax Purposes
One of the objectives of gifting parts of your business interests is to minimize your estate’s valuation for estate tax purposes. Discounts have been recognized both for minority interests and for lack of marketability. However, there are many other objectives that can be met, including transitioning the business to the next generation, rewarding management with equity, and reducing taxable income that would otherwise flow through to you. There are many factors that need to be considered, to assure that your overall goals are met.

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