Question

Estate Planning

A. In terms of minimizing tax liability, how would estate planning differ from a partnership to a corporation?

B. For estate planning purposes, what are the advantages of setting your business up as a corporation versus a partnership? Defend your response.

C. Describe your company’s succession plan and whether it aligns with your company’s vision.

D. Based on your responses, what estate planning strategy would be most effective in minimizing tax liability? Why?

Answer 1

Requirement A

Partnerships incur taxes on the profits they make whereas Corporations must pay state tax and federal taxes. Partnerships and Corporations have dissimilar legal arrangements which affect their tax liabilities in the planning of estates.

In Corporations and limited partnership, it is a lot stress-free to bargain lifetime favours of business concern. This provides parents the knack to transfer certain of their assets out of their estate to their children. This aids them in decreasing their tax liability since their children will be in a lesser tax bracket so they will pay fewer taxes, and the parents will also pay lesser taxes for the reason that they will fall in a lower tax bracket. It ought be known that the recipient of the life time gift business interest becomes a shareholder with little or no control over the management of the corporation. Although, the beneficiary of a all-purpose partnership interest has an identical right to manage and control the partnership and may be authorized to act as an agent of the partnership. The likelihood also exists in a partnership, upon transfer of 50% or more interest, that the partnership will be ended. Under limited liability partnerships, the reassigned interest can be reduced to replicate their value in the market which lessens tax liability.

Trusts can be used to reduce tax liability of an estate. Under partnerships, there are slight to no confines of the type and number of trust partners it is allowed to have. Corporations are limited in the type of trust which shareholder can use. This give partners in partnership more litheness in the dissemination of their estate due to more suppleness.

Requirement B

Liability decreases in the corporation whereas in partnership all liability is pooled by partners only. In starting your business as a Corporation your estate is more sheltered. The liability or business risk is restricted only to the amounts shareholders have capitalized in the corporations. For example if the business has been affected by a lawsuit that; only the part of a shareholders estate that is at peril is the amount financed in the corporation, while in a partnership the amounts the contributed capital in the business will be at danger and even their private assets (estate) might too be at threat if the amount financed in the business does not shield the liability.

In Corporations possession is transferred easier when equated to partnerships. In a partnership, the transmission of ownership of shares is a lot more tough, and at times the transfer of ownership might lead to the dissolution of partnership. While corporations have an indefinite life, and don’t dissolve in cases of shareholder transfers or transactions.

Corporations and partnerships can reorganize income by reassigning shares or interest. But, for service-oriented partnerships, the facility to change income is limited by the family partnership rules. In S corporations, income shifting is only limited to the extent that a reasonable and adequate compensation be paid to corporate employees.

Requirement C

The boards of directors of Corporation are accountable for guaranteeing that the status of organizational power and succession arrangement is unswerving with the long-range goals of the Corporation. With the aid of the CEO the board confirms that Corporation has a more efficient management team in place. On an annual basis, the Board organizes a thorough evaluation of management improvement and succession planning activities to take full advantage of the pool of internal applicants who can undertake top management spots without unwarranted break. In addition, the Board has adopted a CEO emergency succession policy to govern unforeseen succession needs.

Requirement D

A partnership will be more lethal in reducing tax liabilities. Creating a partnership particularly a limited liability partnership will be the best estate planning strategy since partnership provides you extra trust choices which could be used to minimize the tax liabilities of an estate. The problem of transfer of ownership associated with partnerships can be solved with a well drafted succession agreement or plan.