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Reducing Estate Tax Liability in Corporate Recapitalization: Stock Freezes, Sec. 2701 Rules, Coupling With Gifts

Recording of a 90-minute CLE/CPE video webinar with Q&A

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Conducted on Tuesday, September 20, 2022

Recorded event now available

or call 1-800-926-7926

This CLE/CPE webinar will provide estate planners, advisers, and tax counsel with a comprehensive exploration of reducing estate tax liability in corporate recapitalizations. The panel will discuss critical planning and structuring challenges and key considerations in freezing stock value versus holding the stock until death and receiving a step-up basis for income tax purposes.

Description

A stock freeze in a corporate recapitalization can be a valuable and flexible estate planning tool. In its most basic form, a properly structured recapitalization can freeze the value of the owner's stock, potentially reducing the owner's estate tax liability by removing future appreciation in the value of the stock from the estate. Estate planners and tax counsel must understand the complex tax rules to avoid potentially costly consequences and achieve significant income tax savings.

When structuring a stock freeze, the owner of a closely held corporation recapitalizes the corporation by creating two classes of stock (common stock and preferred stock). The owner then transfers part of their interest in the business by gifting or selling the common stock while retaining a portion of the company in the form of the preferred stock. This allows any future appreciation in the business to be attributed to common stock transferred out of the owner's estate with the value of the retained interest remaining constant or frozen.

However, advisers must carefully navigate the technical rules of IRC Section 2701 or the transfer may result in a deemed taxable gift. In addition, advisers must also consider the tax rules and implications of recapitalizing with two classes of common stock, coupling a recapitalization with gifts of stock, distribution rights, qualified payments, and other vital issues.

Listen as our experienced panel provides a thorough guide to the benefits, risks, and structuring techniques of corporate recapitalization and stock freezes in estate planning.

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Outline

  1. Advantages of the stock freeze over other techniques
  2. Understanding IRC 2701 provisions
  3. Valuation issues
  4. Structuring the freeze to maximize basis step-up
  5. Drafting and structuring transfers
  6. Sample language and illustrations

Benefits

The panel will review these and other key issues:

  • Typical structures of corporate recapitalization
  • Freeze techniques and structures
  • Gift tax issues to avoid
  • How not to run afoul of the requirements in IRC 2701
  • State and local income tax considerations
  • Recent developments

Faculty

Fiore, Carl
Carl C. Fiore
Managing Director
Andersen

Mr. Fiore has significant experience with tax and financial matters affecting high-net-worth individuals and families....  |  Read More

Gilreath, Kimberly
Kimberly F. Gilreath
Attorney
Miles & Stockbridge

Ms. Gilreath is a tax associate in our Corporate, Securities & Tax Practice Group. She advises clients on a variety...  |  Read More

Access Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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