Transferring Stock Ownership to Family Members
Steve Kenney, Tax Shareholder
November 22, 2017

We begin this two-part blog series by introducing the topic of transferring stock ownership. This blog, part one, will discuss the transfer/gifting of stock ownership to family members. Through this blog, we intend to educate by providing basic terminology on the rules and principals that guide the transition of stock ownership through family generations.
WHY TRANSFER OWNERSHIP?
Why do people transfer/gift their stock? There are many different reasons. Some are due to a transition of management; a tactic to attract, motivate, and retain key employees; or for estate planning or liquidity purposes. In relation to family members, we will tackle the basics of transitions tied to estate planning, liquidity, and how the passing of a loved one might affect your planning.GIFTS
Rules:
- Currently, annual gift tax exclusion is $14,000 per grantee, but will rise to $15,000 by 2018
- Lifetime exemption is $5,490,000 per individual but is scheduled to increase to $5,600,000
- Estate tax starts at 18% but quickly rises to 40% for taxable estates valuing over $1million
- Nebraska inheritance taxes- 1% for direct relatives ($40k exempt), remote 13% ($15k exempt), and others 18% ($10k exempt)
TRUSTS
Grantor retained annuity trusts (GRATS) are an IRS approved method often known as a “freeze strategy” that may help shift future appreciation. With this technique, you want your growth of the asset transferred to be higher than the interest rate on an annuity. It is very common to have 2-3 year GRATS in which the GRAT is “zeroed-out” and there is no gift tax. GRAT payments can be made in cash or stock. Because it is a grantor trust, the grantor will pay income tax on all earnings during the GRAT’s term and the growth will be transferred to the grantee. If the seller dies during the term of the GRAT, the assets will be included in seller’s estate. Rolling GRATS are often used in order to curb this risk. An intentionally defective grantor trust (IDGT) can be an effective estate-planning tool for small businesses. What makes them “defective” is that the grantor continues to pay income tax on the earnings, but the value of the asset has been transferred for gift and estate tax purposes. Provisions in the trust document that makes the trust “defective” include their ability to substitute assets, add beneficiaries as a trustee authority, and make loans from the trustee to the grantor. In summary, it is crucial to understand the value of your stock before you consider an approach to transferring/gifting. While some methods are simpler than others, it is important to review all options to ensure you are getting the most out of your transfer. Part two of this series will discuss transfers of stock to non-family employees and unrelated third parties. If you have any questions regarding this topic feel free to contact a Lutz representative at info@lutz.us or 402.496.8800.
- Achiever, Relator, Focus, Analytical, Responsibility
Steve Kenney
Tax Shareholder
Steve Kenney is a Tax Shareholder at Lutz with over 20 years of experience in taxation. He specializes in executive tax, estate, and family wealth planning, and assists with mergers and acquisitions.
Recent News & Insights
Accounting
Lutz adds Baker and Reinholz
Lutz, a Nebraska-based business solutions firm, recently added Trystin Baker and Andrew ...
Tech
Lutz Tech adds Agraz and Gasper
Lutz, a Nebraska-based business solutions firm, recently added German Agraz and Adam Gasper to ...
Accounting
Nebraska + Iowa Enact Pass-Through Entity Tax Laws
Iowa and Nebraska enacted Pass-Through Entity Tax (PTET) legislation during the 2023 ...
Market Commentary
A Few Large Growth Stocks Have Driven the Market in 2023 + Market Update
Story of the Week A Few Large Growth Stocks Have Driven the Market in 2023 After an incredibly ...


Let’s get you where you want to go.
We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.