Business succession planning is often the most important part of estate planning, especially when the value of the business is the largest part of the owner's estate. Indeed, passing on the family business from generation to generation is part of the American dream.
One of the traditional ways to handle this objective is with the use of buy-sell plans in which children have the right to buy the business interest from the parent's estate. But this traditional plan gives rise to three potential tax traps:
* The estate tax value of the business may far exceed the buy-sell price.
* The buy-sell option may cause loss of the marital deduction.
* The children may have gift tax consequences if they do not exercise their option to buy the business.
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