What Is It?
You can transfer your business to your children as joint owners so that they share ownership. Joint ownership, also known as joint tenancy, is one of the ways two or more people, called joint tenants, can own something together. As joint tenants, each owns the whole property and is entitled to use it as he or she sees fit. You can equalize distributions to your participating and nonparticipating children by granting them joint ownership of your closely held business. As joint tenants, both participating and nonparticipating children each own the whole company (or its stock). They will share voting control of the company, and if a joint tenant dies, his or her interest in the company will automatically pass to the surviving joint tenants.
Example(s): Ted wants his children, Nellie-Mae and Ken, to succeed him as owners of the family business. He wants to make sure that each child will receive an equal share of his wealth when he dies. Ted transfers the business to Nellie-Mae and Ken as joint tenants. Nellie-Mae and Ken will each own a one-half interest in the whole business.
Caution: Granting joint ownership of your closely held business may be a taxable gift, subject to gift tax.
How Does Joint Tenancy Differ From 50 Percent Ownership?
Joint tenancy differs from 50 percent ownership. If two people are 50 percent owners of a corporation that has issued 100 shares of stock, then each person individually owns 50 shares. If two people are joint owners of a corporation that has issued 100 shares of stock, then each person owns an undivided, one-half interest in all 100 shares. It is relatively simple to transfer your business to your children as joint tenants. It can be done during your lifetime or through a will.
What Are The Strengths of Joint Ownership?
The major strength of this planning solution lies in the fact that with joint ownership, your children will have equal ownership rights in and control over the family business. This plan truly equalizes distributions to your children.
What Are The Tradeoffs of Joint Ownership?
Joint ownership allows your nonparticipating children to exercise significant control over the family business. Your nonparticipating children may have insufficient familiarity or experience with the family business to take part in business decisions. They may have different motives regarding the future of the family business. Equality of control could translate into significant interference with business decisions and operations. Further, assets held jointly are vulnerable to the creditors of any joint tenant.
What Are The Tax Implications Associated With Joint Ownership?
When transferring property to your children during your lifetime, your transfers may be subject to gift taxes. When transferring property to your children upon your death, the transfers may be subject to estate taxes.
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