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Leave a Legacy

RSS By: Kevin Spafford, Legacy Project

Kevin Spafford is Farm Journal’s succession planning expert for the Farm Journal Legacy Project.  He hosts the nationally-televised ‘Leave a Legacy’ TV, facilitates an ongoing series of workshops for farm families across the U.S., and is the author of Legacy by Design: Succession Planning for Agribusiness Owners.

Don't Gift Control Too Soon

Jun 01, 2010
From Legacy Moment eNewsletter (May 28, 2010)
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Mark is the sole owner of his family’s dairy. The ownership transition phase of his succession plan calls for him to gift a controlling interest in the operation to his daughter Amy, who will succeed him as owner/manager of the operation.

 

 

The operation was appraised at $6 million (excluding the real estate which Mark will retain separately to enhance his retirement and ensure his financial security). If Mark were to gift 51% of the farm to Amy, the value of that interest would exceed the prorated $3,060,000 ($6,000,000 × 51%), because 51% represents a controlling interest which generates control premium.

Mark may consider gifting 49%, which may call for discounts based on a lack of marketability and a lack of control. A valuation appraisal may call for a 15% minority interest discount and a 15% control discount. Applying a 30% discount to the prorated interest provides a substantial gift tax savings. Keep in mind, when Mark eventually gifts 2% or more, he will be giving a controlling interest to Amy, and now the value of those shares may be subject to a control premium.
 
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COMMENTS (1 Comments)

Paul Neiffer, CPA
Most farm owners should be actively working with their advisors this year to take advantage of the current estate and gift tax rules which will probably be much worse in 2011 and beyond
10:55 AM Jun 8th
 
 
 
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