Is Now a Good Time to Gift Interest in My Business?

Tim McDaniel | May 10th, 2010

If you’ve been considering gifting interest in your family-owned business or real estate holdings, you’ll certainly get the most “bang for your buck” right now.

The Great Recession wreaked havoc on business values, making your business worth considerably less than it once was. In our recent business valuations, we’re finding business values far below what they were two or three years ago. This means you can pass more stock in your company now than you could in a healthier economy.

Estate Planning

Congress has eliminated the estate tax in 2010, but it will be brought back no later than January 1, 2011. Some experts speculate that the estate tax will have lower exclusions and higher rates than the 2009 limits.

Congress is also discussing taking away some of the estate planning tools that have been beneficial to gifting of business interests. These tools include grantor retained annuity trusts (GRATs) and minority and marketability discounts. A GRAT not only shelters valuable assets that you can pass on to your heirs with minimal taxes, but also lets you receive an annuity for as long as the trust lasts. Any amount the GRAT earns beyond current interest rates when the trust is set up will be estate-tax free. Marketability and minority are two types of appraisal discounts routinely applied when determining the fair market value of unlisted stocks or privately-held small businesses. The basis of the marketability discount is the subject property’s lack of liquidity due to the absence of a recognized market, as well as the potential costs necessary to prepare a public, third-party sale. A minority discount reflects the fact that the lack of majority control over subject property reduces its desirability, thus depressing its value.

If you intend to retain the ownership of your business with your family, gifting business appreciation is a great strategy to accomplish it. If you’ve been considering gifting interest in your business, now is the time to obtain a third-party valuation of the business. By knowing the true value of the business, you can better plan your gifting strategy.

Your financial advisor can help you not only through the valuation process but also work with you to develop the best gifting strategy for your situation.

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2 Responses to “Is Now a Good Time to Gift Interest in My Business?”

  1. Tomas Mendoza says:

    You got to admit, there is no fast solution.

  2. Tim McDaniel says:


    You are right there are no quick fixes when it comes to succession planning. A good plan will take some time to develop and years to implement. However, right now is the best time to gift stock to the next generation if that is the succession plan for the owner

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