Recently we’ve been discussing how TRUSTS
can be used to develop a Business Succession plan. We noted that a technique often used is a
Revocable Trust. Here the word revocable
is key. This means that you can change,
alter and amend the trust.

Let’s shift
our attention to a trust you cannot change, An Irrevocable Trust. One should note that although you cannot
change this trust, you can always terminate it. The most common reason to write an
Irrevocable Trust is that you want the proceeds inside this trust to be outside
your taxable estate. Here you want to
keep in mind some very important figures.
To begin with, you must remember the Federal and New York State
EXEMPTION AMOUNTS. Let’s describe each.

The current exemption amount for federal
estate tax purposes is $5,430,000. All
this means is that if the value of your estate is above that amount, then the
federal estate tax will kick in. This
amount will be taxed at a maximum amount of 40%.
In New York, our current exemption amount is $3,125,000 with the maximum
tax at 16%.

It stands to reason then if your estate,
especially including the value of your business is below these exemptions, then
there is no real need to entertain an Irrevocable Trust. Perhaps a better idea would be to gift the
value of your business to a family member.

Along with the exemption amounts is the
Annual Gift Tax Exclusion. Each year the
federal government allows you to gift away, without any tax liability, $14,000
per person. If your spouse consents,
then you can gift a total of $28,000 per person. For example, if you have two (2) children who
are in the business and your spouse agrees, you can gift each year a total of
$56,000 (2 X $28,000).

Such moves takes careful planning. I strongly advise seeking advice from an
estate attorney, CPA and financial advisor.