This Tax Planning Strategy Can Save You Tons When You Transfer Your Business

Successful business succession planning comes with lots of planning. Intentionally Defective Grantor Trusts, according to Tom Krause, CPA, can keep things simple and save you money.



There are a number of businesses that will be transferring ownership over the next ten years.  Why? Baby boomers. There is a large population of baby boomer business owners who will be upon retirement age and desiring to sell or transfer their ownership.

These business owners are asking their consultants what choices they have to sell their businesses and how they can limit the amount of taxes to be paid.  Most importantly, they do not want anything to be complicated. Well, if the business owner wants to go to market and outright sell their business to the highest bidder, then that is one possibility. Their consultants can structure the transaction to limit the amount of taxes to the seller through the sales contract and the transaction can be completed.

What happens if the business owner wants to transfer the business to a family member or an executive that is involved in the business? There is a transaction that can be structured under a special type of grantor trust called an Intentionally Defective Grantor Trust.  This type of trust allows the business to transfer to those the seller desires in a very efficient tax manner.

Effectively, the profits of the business that would have been earned regardless of the trust are used to satisfy the requirements of the trust and the ownership can transfer tax-free to whomever the business owner desires. This type of transaction reduces a layer of tax upon the sale and can eliminate any gift tax issues. There are other details and benefits that need to be considered, but this type of sale/transfer remains quite simple.

This is a very powerful gift, estate, and tax planning strategy and we would we would be glad to answer any questions that you may have. Give us a call!