Karen is the sole owner of a wildly successful small business. However, Karen's financial advisor has told
Question:
Karen is the sole owner of a wildly successful small business. However, Karen's financial advisor has told her that her estate would be unable to meet its cash requirements if she were to die today, and the business would have to be sold. Karen, who is a widow with not children, is only 50 and plans to continue running the business for many years. However, she does want to take some action to prevent the possible sale of the business should she die, and prevent future appreciation of the business from inclusion in her gross estate. Karen is very close to one of her nieces, who has shown an interest in and aptitude for the business.
Which one of the following actions would be most appropriate to help meet the liquidity needs of Karen's estate and would be consistent with her objectives and situation?
A)Karen should enter into a private annuity agreement with her niece regarding the business.
B)Karen should convert the business into an S corporation and gift shares in the corporation to her niece over a period of years.
C)Karen should undertake a preferred stock recapitalization of the business in which she retains a majority of the voting stock with a fixed liquidation value, and begin a gifting program whereby she gives non-voting common stock to her niece.
D)Karen should enter into a cross-purchase buy-sell agreement with her niece funded with life insurance on each of their lives.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts