Wealth that is concentrated in a private business can pose significant difficulties for those who want to bequeath their assets to a future generation. The federal government is likely to take a big bite out of any estate valuation actions that occur before death, unless a business owner presents a shrewdly crafted estate plan. Here are some tips to keeping your family business – and your family funds – where they belong.

First, business owners who want to give their operations to their children should take full advantage of tax breaks and gift options. For example, if you own your own business, you can give millions to your spouse or child without penalty. That money, once removed from the business, cannot be taxed at the same high rate as an estate tax.

Next, consider creating an irrevocable trust. This kind of trust is difficult to change after it has been created, but it is perfect for business owners who know they want to give their operation to their children. People who are considering using this mechanism should think about putting strong company shares into the trust. Those trusts are tax-free, so the earnings from the powerhouse shares will be largely protected. Put as much as you can into these trusts without triggering taxes. Your attorney can help you figure out an amount that would best benefit you.

Company owners who are concerned about giving over a majority of their shares into an irrevocable trust before their deaths should remember that they can always change corporation shares into nonvoting shares. That means that the trust can be created and administered before death without compromising the leadership of the company.

A little bit of creative accounting and legal strategy can save your estate a significant cost if you decide to bequeath your business to a relative. Consult an attorney, financial planner and tax adviser before making any major decisions related to your estate valuation.

Luis E. Barreto