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Should I transfer shares of my C corporation or the

Should I transfer shares...

Should I transfer shares of my C corporation or the underlying asset to my children to avoid having my second wife obtain any of it? Should I transfer as a gift or a sale at cost?

Lawyer's Assistant: What state are you in? And have you consulted a local attorney?

VA no

Lawyer's Assistant: Has anything been officially filed? If so, what?

No

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Answered in 3 minutes by:
5/12/2017
Legal Eagle
Legal Eagle, Lawyer
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Hello! My name is ***** ***** I am an attorney with Just Answer. I'll be here to help today! Do you mind if I take a moment to review your question? By the way, the system will automatically ask for a phone call. By no means are you required to accept it.

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Can I clarify something before I respond? Are you looking for ways to help avoid substantial gift taxes?

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Customer reply replied 1 year ago
to avoid gift taxes or any other taxes to myself or my children.

Understood. If you don't mind me asking, how much are the shares of this C-corporation worth? Is it less than $5.45 million?

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Customer reply replied 1 year ago
I don't know htat the shares are worth anything themselves. the Property that is owned by the corporation is worth under 5.45M but above 2M.

Excellent. Just one moment...

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So the gift tax is complicated, but it appears as if the best thing that you could do is probably sell them a portion of the stock, but then gift them the rest. Generally, a gift tax does not apply until you hit that 5.5 million dollar ceiling.

For example, if the stock is worth $2m, then you could sell them $1,000,000 worth. This would mean that the gift would be $1,000,000 (the difference between the gift and its value). If you gift it to them entirely, then you would be gifting $2m worth of stock, putting your closer to the ceiling of $5.45 million that triggers the gift tax.

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However, keep in mind that there are annual limits as well.

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You can exclude gifts as a part of your taxable interest that you would have to owe up to a certain amount. The IRS says, "The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift. The annual exclusion for 2014, 2015, 2016 and 2017 is $14,000."

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Although you may have to owe the gift tax, your children may owe income earned on that stock. So that is something to keep in mind.

So the bot***** *****ne is that you will probably be able to sell it to them, but they would owe taxes on income earned. You could also gift it, but you would definitely exceed the annual exclusions and you would have to pay a gift tax on that.

Follow up questions are free, so did you have any additional questions? If not, were you satisfied with my service today?

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Customer reply replied 1 year ago
it sounds like gifting is out of the question. If we transfer by sale at cost why would there be "taxes on income earned"? I don't even know what this means. What income?
Understood. So basically if the stock earned income (like thougba quarterly dividend) then they will have to pay taxes on it. However, if there is no income earned, then they don't pay taxes. If the kids exercise their stock and sell it to someone else, that income is taxable. So although I recommend contacting your CPA to be sure, if you sell it, you can avoid additional gift taxes.
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Did you have any follow up questiosn?

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Customer reply replied 1 year ago
no thank you

The pleasure is all mine! Further up on the screen you should see a chance to give me a rating. 5-stars are always appreciated, but it is definitely not required!

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