Gifts of closely held business stock may sacrifice future savings.

• Jurisdiction: United States
• Author: Liguori, Albert W.
• Date: 01 May 1997

Successful estate tax planning involves many alternatives. Adoption of an overall estate tax plan takes many of these alternatives into account. The use of one or more planning techniques depends on a taxpayer's personal, philosophical and financial goals.

When an owner of a closely held business dies, Sec. 6166 allows the estate to defer payment of the portion of the estate tax attributable to the business interest over 15 years. Interest will accrue on the unpaid portion of the tax, but under Sec. 6601 (j), the rate is only 4% on the first $1 million in value of the closely held business interest included in the gross estate.

Additional relief proposed: President Clinton's recent budget (proposed to Congress on Feb. 6, 1997) includes a provision that would increase the value of business interests eligible for the reduced rate of interest to $2.5 million. It would also reduce the interest rate to 2%, although the interest payments would no longer be deductible by the estate.

Caution: To qualify under current law (and under the...