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ESTATE PLANNING FOR BUSINESS OWNERS – Recapitalization into Voting and Non-Voting Interests

Business owners often have a substantial portion of their wealth invested in their businesses and related real estate.  This creates challenges in satisfying the desire to retain control, transfer value to children or other family members, and to minimize potential estate tax.  Recapitalization of a business’ stock (or membership interest in the case of an LLC) into voting and non-voting shares could help business owners satisfy these competing objectives.

Recapitalization allows founders to retain control while transferring some of the business’ equity to the next generation, avoiding estate and gift taxation on post transfer appreciation.  This can be particularly helpful where the business owner wants all children to share in its value regardless of whether they are involved in the business and where the business represents a disproportionate share of the family’s wealth.

An additional benefit is that the value of gifts of minority interests can often be discounted for lack of marketability and lack of control which can leverage business owners’ estate and gift tax exemptions.

We are available to discuss whether recapitalization makes sense for your business and the planning vehicles that may be available to help transition businesses and family wealth to children and grandchildren while minimizing estate and gift taxes.