Ann and Bob are in an interesting situation, with many
opportunities. While being very wealthy, they have enough
family to all avoid avoidable estate taxes. Bob and Ann each
have a lifetime gift limit of $12M in 2023 for a total of $24
million. Leaving approximately $100M to be distributed upon
their passing. Each family member receiving approximately
$4.5M and owing $1.7M in estate taxes. Maxing out the lifetime
gift will save the family nearly $10M in estate taxes.
If Bob and Ann were to gift each of their 22 kids and
grandkids $1M in investments it would result in a number of tax
consequences. The $22M gifted to the kids/grandkids would be
under the current lifetime gift limit, in 2023 it would be $24M
combined for the two of them, assuming Bob and Ann had not
previously gifted the family. Avoiding gift tax. Any amounts
taxed on the recipients personal returns would be taxed at
lower rates than the historic estate tax rates.
If Bob and Ann were to leave everything, their property and
investments, divided equally amongst to the family it would get
taxed aggressively. Each family member would receive assets
with an approximate value of $3.5M. That $3.5M would be
taxed $345,800.00 on the first million, then 40% on everything
over the first million. Each family member would owe estate
taxes to the tune of $1.3M. Another option might be, if you are
not going to transfer wealth before their passing, would be to
put the investments into a family trust and leaving the property
to the family to split evenly.
References:
Adams, Hayden. “The Estate Tax and Lifetime Gifting.”
Schwab Brokerage, 22 Mar. 2022,
https://www.schwab.com/learn/story/estate-tax-and-lifetime-
gifting#:~:text=Unless%20Congress%20makes%20these%20
changes,exemption%20(adjusted%20for%20inflation).
Anderson, Kenneth, et al., editors. Pearson’s Federal Taxation
2023 Corporations, Partnerships, Estates & Trusts. Pearson
Education, Inc, 2023.
Fan, Joseph P.H., and Winnie S.C. Leung. “The Impact of
Ownership Transferability on Family Firm Governance and
Performance: The Case of Family Trusts.” Journal of
Corporate Finance, vol. 61, Apr. 2020, pp. 61–86.,
https://doi.org/10.1016/j.jcorpfin.2018.09.004
Reardon, Dennis C. “Estate and Tax Planning for S
Corporation Owners.” Journal of Financial Service
Professionals, vol. 77, no. 1, Jan. 2023, pp. 21–23.
“Transferring Ownership of Stock within an S Corporation.”
Colonial Stock Blog, Admin, 1 Feb. 2023,
https://blog.colonialstock.com/transferring-ownership-stock/.
