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Sad but true, these are tough times. The stock market is volatile … “Uncertainty prevails.” Getting a bank to finance business growth or an acquisition is almost the impossible dream. Try to sell your business and unfortunately the number of willing and able buyers is not only smaller but the offers are much less than you could have received in the past. Can this type of negative business environment have any positive tax impact on closely held businesses?

The answer is a resounding Yes! In what area? Succession planning. How do I know? Concerned owners of family businesses call me to get more information, consult and then implement plans to transfer their businesses to their kids (or other relative, key employee(s) or fellow stockholders).

Two questions are central to every transfer plan: (1) What is my business worth? And (2) What are the tax consequences? Let’s answer these questions one at a time.

Whether your transfer plan is a sale of the business to the kids (always a tax disaster), a gift, a redemption (usually a tax disaster) or some other strategy or combination of lifetime transfer methods, the same big question stands tall – “How do I value my business for tax purposes?”

Once you know the value of your business, you can compute the amount of dollar damage the income tax and estate tax can cause. Best of all, you are in a position to create a transfer plan that can reduce (almost always even eliminate) these taxes, yet (1) keep you in control of your business for as long as you live and (2) provide you and your spouse with a source of retirement income.

If you are even thinking of selling your business, get competent and experienced professional help. The name of the game is only partially how much you get in sales-price dollars … the real answer is how many after-tax dollars you keep in your pocket. Simply put: Right price … Right tax strategy.

Now, let’s tackle the transfer-of-your-business problem: to your kid(s), employee(s) or any other person close to your heart. Notice – No sale. But a transfer. A sale is a tax disaster, no matter how clever it might be structured.

The only … the best … and the right strategy is always an intentionally defective trust (IDT). What is and how does an IDT work? To answer the question, let me digress for a moment (with an analogy).

The analogy: Look at your watch please and tell me what time it is. One or two seconds later you tell me the correct time. Then, I say, “Can you build me one of those things?” Of course, you can’t… yet you know how to tell time perfectly. And it’s easy.

Now, back to an IDT, the transfer weapon of choice. An IDT allows you to transfer your business or investment assets, (like real estate or a stock portfolio) tax-free. That’s tax-free. Let’s look at an example: Have your business professionally appraised… say it’s worth $3 million. Using an IDT will save you about $190,000 (a bit more or less depending on your state income tax rate) per $1 million of the sale price. So, the $3 million sale of your business to your kids – using an IDT – will save your family $570,000 in taxes.

No kidding. And it’s easy. We do it all the time … never a peep out of the IRS. But you must have a knowledgeable pro do the documents and the entire transaction exactly right, or you will not get perfect results.

Never – but never – sell your business to your kids, or anyone else. Use an IDT.

Have a question? Just call me (Irv) and I will walk you through the right way to value your business and solve your business-succession tax problems, yet keep control. (Call me at 847-803-7796.) or email me (irv@irvblackman.com).

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