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Written by Matt Leuck, a CPA with Hojnar, Leuck and Associates, Ltd., a full service financial services firm. With over twenty-five years of experience in accounting and taxes, they consult on investments, retirement plans, strategic planning, buy-sell agreements, estate planning and trusts. They can be reached at 630-887-8181 or write to Financially $peaking c/o The Plastics Distributor and Fabricator Magazine.


You want to pass the shares you own in your company to one of your children (the child who works in the business) upon your death, while still providing the value of the company to your spouse tax free.

SOLUTION: You have your child buy life insurance on your life in the amount you want your spouse to receive upon your death with a binding agreement between your child to buy the shares from your estate. You pay the premiums for the child and report the premiums paid as a gift to the child. The child would own the policy and receive the proceeds tax free and use the cash to buy the shares from your spouse. If the premiums are more than the $ 10,000.00 annual exclusion, have your spouse join in the gift or gift the money to other members of the child's family so they can pay the premiums on your life insurance.

POSSIBLE SNAG: Insurance on your life exists to finance the purchase of the shares, but the insurance is owned by the company, not by the child who needs the proceeds to purchase the shares from your estate.

PLAN: The owner would buy the insurance policy from the company for its fair-market value (which is usually close to its cash value), then make a gift of it to his child. The child would then enter into a binding agreement to buy the owner's shares from their estate, using the policy proceeds.

RESULTS: The owner does not recognize any income when he purchases the insurance policy. The company may recognize income upon sale of the policy if there is a built-in-gain. The owner's gift of the policy will be tax free if the amount is covered by the owner's annual $10,000.00 exclusion and unified credit amount. The child will receive the policy proceeds income-tax free. The child's purchase of the shares from the estate will be income tax free to the estate, because the estate receives a stepped-up basis in the shares at the owner's death. What the child pays to the estate will pass estate-tax free to the owner's spouse, under the unlimited marital deduction.

The desired child receives all the owner's shares with a stepped up basis, the owner's spouse is made financially secure by receiving the payment for the business, and the transaction does not trigger any income tax to the owner or his child, and does not trigger any additional estate tax.

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