Mullen and Iannarone, P.C.
Serving the legal needs of corporations, individuals and
families of Suffolk County since 1972

Using estate planning to minimize taxes for angel investors

New York angel investors may be able to use estate planning in order to pass more of their assets to their beneficiaries with smaller tax burdens when they pass away. Estate planning can be used in a way to take advantage of high returns that are received on investments that are made in promising startups.

When an angel investor invests in a new startup and receives shares in the company, the value of the shares is initially low. When the company holds promise to become successful and increase in value, investors might want to consider making a gift of the shares to a trust. The amount of the gift would be the value of the shares at the time the shares are placed in the trust. This means that no matter how much the value may go up, the amount subtracted from the person's lifetime estate tax exemption would be the value at the time of the transfer.

For 2016, the federal estate and gift tax exemption is $5.45 million. Removing the value of shares when they have minimal value can save estate taxes that might otherwise be incurred. Holding assets in trusts for the beneficiaries may also help the transfer go more smoothly while avoiding probate.

There are multiple types of trusts that may be of benefit to people who have sizable estates. A common reason to establish one is where there are concerns that a future beneficiary would squander an inheritance received as a lump sum under a will. An attorney may suggest to a client in this position the establishment of a trust that would provide for distributions to that beneficiary upon the achievement of certain milestones.

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