As difficult as it may be to think about, it’s important to plan for your family’s future needs when you’re gone.
By establishing the appropriate succession plans and protections, the lawyers at Rosenn Jenkins & Greenwald, LLP can clarify the process and ensure that your plans are properly set in motion. For nearly 60 years, we have assisted clients in Scranton, Wilkes-Barre and throughout Northeastern Pennsylvania with passing on their wealth and preparing estate plans and succession plans that protect their interests and their families.
The efficient transfer of assets between generations of family members and from family business owners to other family members is a major aspect of estate planning. Each of these types of transfers has both tax and non-tax advantages.
These loans are made among family members. Many of the uses of intrafamily loans take advantage of the fact that the mandated federal interest rate (the applicable federal rate or “AFR”) is usually lower than the prevailing market interest rate for commercial transactions. Interest payments remain within the family rather than being made to outside banks. The lender can use annual exclusion gifts (up to $14,000 in 2015) to reduce the principal of the loan.
Installment sales are sales of property in which the seller receives at least one payment after the tax year in which the sale occurs. The Internal Revenue Code permits the seller of a family business interest to report any gain on the sale for income tax purposes as the payments are received.
Self-Cancelling Installment Notes (SCINs) are installment notes by whose terms the death of the seller ends the buyer’s obligation to make future payments. The note is not included in the estate of the seller. However, any unrecognized capital gain at the death of the seller is taxable to the estate of the seller.
In a sale for a private annuity, the seller transfers property to the buyer in exchange for a contractual promise by the buyer to make a stream of payments based on the seller’s actuarially-determined life expectancy. The annuity obligation terminates at the seller’s death, and the buyer must continue to pay the annuity amount even if the seller lives beyond his life expectancy. In general, the private annuity is not included in the seller’s taxable estate.
Family Limited Partnerships and Family Limited Liability Companies
Family limited partnerships and family limited liability companies can reduce federal estate and gift taxes payable by parents by placing property in a partnership and then claiming valuation discounts for gifts of limited partnership interests to children. The limited partners cannot control the partnership and cannot force distributions of partnership income or assets. Family limited partnerships also have nontax advantages: they can be used to protect the partnership assets from credits and centralize the management of a family’s investments.