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Understanding Physician Estate Planning
By Lawrence E. Howes; CFP™
By Joel B. Javer; CFP™
A family business or medical practice may make up the majority of a physician’s estate. Unfortunately, although the practice does have value, it may have very little cash.
Recognizing the Dilemma
In recognition of the closely held business owner, the IRS allows stock in the company to be redeemed to pay federal and state death taxes, generation-skipping transfer taxes, and funeral and administration expenses.
There are few tax-deductible ways of getting money out of a corporation and salaries and business expenses head the list.
Example:
For example the IRS maintains that, if a business is at least 35 percent of your adjusted gross estate, the business owner can redeem stock to pay for approved expenses. Since you get a step-up in basis at death, the shares redeemed should not generate a capital gain.
The transaction is deemed a sale of a capital asset, and not a dividend. (A dividend is not deductible so it is taxable to the corporation as well as taxed to you personally upon receipt).
Assessment
The strategy of an Internal Revenue Code § 303 redemption is prudent. However, there must be cash available to redeem the stock. Typically, a life insurance policy is purchased to provide the cash for the redemption.
Conclusion
Please opine and comment if you have ever considered or used this strategy; and what was the result?
Book info: http://www.jbpub.com/catalog/0763745790/
Linguistics: www.HealthDictionarySeries.com
Related: Funding IRC Section 303 to Pay Estate Taxes and Expenses
http://www.nysscpa.org/cpajournal/1997/0597/depts/pfp.htm
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Filed under: Estate Planning | Tagged: Estate Planning |
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