From Inside the Firm: Tom’s Tax Tips for Succession Planning


1. Estate tax, the cruelest tax. You are taxed once on the income you earn. You save some of what you earn and are successful. If you die with “too much”, you are taxed again on your hard earned savings.

2. Only Federal; Texas does not have an estate or an inheritance tax.

3. Exemption: Each individual has a $5.45mm lifetime exemption. (2016). Twice that amount if married. Highest estate tax rate: 40%. Annual gifting: $14,000 annual exclusion. Each individual can gift up to that amount to multiple donees (recipients) without regard to eroding lifetime exemption.

4. Portability: Ability of surviving spouse to use whatever lifetime exemption not used at first to die’s death. See, American Taxpayer Relief Act of 2012

5. Selling the business: Structure matters! If done properly, IRS may accept the arm’s length agreed upon value. Be aware of basis. Stepped up and carry over basis.

6. Estate tax freeze: May be able to transfer the appreciation in certain property out of your estate if properly transferred.

7. Valuation discounts appear set to disappear. Historically, taxpayers have been able to give away fractional interests in business property/entities and receive a valuation discount (e.g. for lack of voting control). Now projected IRS regulations regarding IRC 2704, anticipated to be effective late 2016 or early 2017 may eliminate this strategy. You should act now.

8. Insurance 1: Use insurance to provide liquidity for payment of any estate tax upon death of loved one.

9. Insurance 2: May purchase life insurance via an irrevocable life insurance trust and keep proceeds out of estate. Large amounts of insurance money may pass to heirs without tax. Use of favorable leverage.

For additional information on taxes and succession planning in Houston, please visit our website. 

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