Tuesday, November 10, 2009

GETTING PERSONAL: Wealth Transfers for Family Businesses

NEW YORK (Dow Jones)--The same weak economy that has stymied some family businesses' plans to sell their operations makes conditions ideal for transferring ownership within the clan.

"With business valuations depressed and interest rates near historic lows, owners can use wealth-planning strategies, such as trusts and other techniques, to pass bigger slices of their businesses to their heirs more cost-efficiently," says Joseph Fahey, the national director of business planning services for Wells Fargo & Co.'s Private Bank.

This can be achieved through a combination of tax-free gifting and sale techniques that freeze the value of a business at today's trough in the business cycle, advisers say.

Cornelia Spring, Northeast Head of Wealth Advisory for J.P. Morgan's Private Wealth Management, says she advises business owners on setting up short-term grantor retained annuity trusts, or GRATs, which are used to pass assets to heirs free of gift and estate tax. If shares held in the trust appreciate at a faster rate than a special Internal Revenue Service rate--which is 3.2% in November--then the upside value goes to the heirs at the trust's maturity.

"It's a way to transfer ownership to the next generation. There is no limit on how much or how often you do this, so it can be a powerful tool if repeated multiple times," she says.

Posted by Kelsey Hoffman

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