As business cycles go, this is a great time to sell a family-owned business to the family. In particular, parents can lend money to their children for the purchase of the business at an incredibly low interest rate without incurring gift tax implications. The purchasing child becomes a successor owner, and a smooth transition occurs while the parent is still alive.
Like any sale of a business, however, the devil is in the details. What looks like a straightforward sale to a child can create unforeseen taxes and can spin the family into acrimony and discord. And that’s why a sale should be well-planned and done with the help of professional advisors knowledgeable of these transactions.
As a trust officer commented to me this week, “When you have a heart attack, don’t consult a podiatrist!”
Consider this hidden tax trap. Sometimes the selling parent dies before the installment sale to the buying child has been completed. In this situation, the seller typically provides in the will for the forgiveness of the remaining debt. This seemingly innocuous move can cause income tax to the estate and an unintended financial loss to other children who are not part of the family business.
It’s A Trap: Selling The Family Business To Your Family Could Cost You – Forbes