Most business owners have three common goals concerning investments: they want to save income taxes, reduce or eliminate estate taxes, and control the property for as long as they live. They also want the income and wealth to stay in the family. There is a way to achieve these goals--follow these three steps:
(1) Form a new corporation and elect S corporation status. (2) Exchange the investments for stock in the new S corporation. This transaction is tax free. Over a period of time, gift portions of the S corporation stock to your children, grandchildren or others, keeping at least 51% of the stock to retain control.
The tax consequences add up as follows: You can gift up to $10,000 tax-free per year to each donee. If you are married, the amount is $20,000 with spousal consent. Stockholders pay income tax on their proportionate share of income. Shares of stock owned by other family members will not be included in your estate.
Make sure to follow all rules applicable to S corporations--title to the assets must be in the corporation's name.