More Than Money
Issue #32

Passing the Torch: The Great Wealth Transfer

Table of Contents

“Planning a Tax-Efficient Wealth Transfer”

by James John Jurinski

James John Jurinski (), JD/CPA, has a law office in Portland, Oregon and teaches family business planning at the University of Portland. He is the co-author, with Gary A. Zwick, of two books on family business planning published by the American Law Institute-American Bar Association.

In my view, there are few things more important to business-owning families than good tax planning. Failure to plan a tax-efficient wealth transfer, or having an ineffective plan, can diminish the amount of wealth that ultimately reaches the next generation. Although some would argue that this is not a worthy goal, I believe good tax planning is important in order to ensure the viability of a family business, as well as to foster harmonious relations in the family.

To plan a tax-efficient wealth transfer:

  • Be pro-active and start planning early
    Family members need to initiate tax planning; it doesn't happen automatically. Because tax minimization may require corporate or ownership changes in anticipation of the transfer, tax planning needs to start many months, if not years, before the ultimate transfer.
  • Find an experienced tax lawyer
    Without knowledgeable planning, the family will miss out on tax reduction opportunities. For example, if the family business is sold at a profit to outsiders, each shareholder in the family business will have to pay a capital gains tax on the profits. Depending on the structure of the sale, the sale may trigger not just one but two levels of tax-one at the business level and the other at the owner level. This second level of tax can severely erode family members' wealth.
  • Develop a charitable giving plan and an estate plan
    Giving and estate planning can produce a tremendous tax benefit. Proceeds from the sale of the family business will go further if your individual taxes are also minimized. For example, one powerful technique is to use a charitable remainder trust to provide lifetime income to family members, combined with a charitable gift of all or part of a company's stock.

With sufficient time and planning, your family and your advisors can design a wealth transfer plan that is both tax-efficient and fair to all family members.

Editor's Note: For a perspective on why individuals might deliberately choose to pay higher estate taxes, see "Wealth: We Didn't Get Here On Our Own" by Chuck Collins and "To Whom Much Is Given, An Interview with William H. Gates, Sr.," in "The Everyday Ethics of Wealth," More Than Money Journal, Issue #31, Fall/Winter 2002, pp. 24-27. See also, in this issue ("Passing the Torch: The Great Wealth Transfer"), our Viewpoint section, entitled, "What Will Your Legacy Be?," pp. 28-31.