If your business is a family enterprise, it’s only natural that there will come a time in your life when it’s time to transfer its ownership or assets to the next generation. While that time may seem far off at the moment, you may want to start thinking about the best plan forward from a financial standpoint in order to save you and your family members money down the line. 

Transferring Business Assets to the Next Generation

If you are planning to give assets to your children or grandchildren, it’s probably safe to say you intend to do so for free or for below the fair market value of the assets. Assuming the assets are gifted while the business owner is still alive, they will be taxed under the gift tax. Assuming they are gifted after the passing of the business owner, the assets will be subject to estate tax.

From a financial standpoint, there are a few key factors to remember when preparing to transfer assets to loved ones. First, the only taxable part of the transfer is the excess of the asset’s fair market value (open market value) over the compensation received. However, only gifts of $15,000 or greater are taxable in 2021. This highlights the importance of proactive planning when it comes to transferring business property. If you manage to gift assets in chunks of under $15,000 year after year, the gifted property will not be subject to any tax whatsoever. Similarly, only estates of $5 million or greater are subject to tax payments. If your assets exceed that amount, you can reduce your tax burden by proactively distributing ownership through gifting.

Working with Experts for the Best Possible Results

Transferring ownership of a business is a serious step in the estate planning process, which is why we recommend working with a few experts to ensure your best interests are thoroughly met. An experienced attorney can help ensure that all of your estate planning is legally sound before you move forward with executing the plan. And if real estate is a substantial component of your holdings, Willowbrook Valuation & Advisory Services has the experience to ensure that appropriate discounts for lack of control/marketability are applied, whether for a taxable estate, an irrevocable trust seeking to meet an exemption, or any other situation involving a fractional interest.

Partner with Willowbrook Valuation & Advisory Services for Assistance with Your Commercial Investments

At Willowbrook Valuation & Advisory Services, we are a leader in trusted insight, cutting-edge innovation and customer service. We offer exceptional support to assist clients with litigation, insurance valuation, consulting, property tax services, and valuing minority interests. To learn more about our services, please contact us at (202) 919-3888.