Gifting & The Stock Market

While the proverb “Every cloud has a silver lining” is always true, sometimes it’s hard to find the silver lining.  Where is that lining for business owners?

In the last twelve months, the S & P 500 Index ranged from a high in April 2022 of about 4,462 to a low of about 3,577 in October 2022.  It somewhat recovered currently to the 4,129 level but is volatile and down overall as of the writing of this article.

The value of privately held businesses may be rising and falling, too.  Valuations of privately held businesses are influenced by the investor expectations, which are reflected in stock market returns.

“That sounds like more bad news, so where’s the silver lining?”

If there are plans to transfer equity interests to family members, now may be the time.

The federal estate tax exemption, which covers gifts, too, allows an individual to transfer up to $12.92 million in value without incurring any gift tax.  If married, a business owner and their spouse can transfer up to double that, or $25.84 million.  The amount used through gifts is applied against the value of the remaining assets upon death. (Note that states have their own and varied rules and taxes).

While $12.92 million and $25.84 million are huge amounts, business owners typically hold other significant assets.  The more they retain with their federal exemption, the better.

Note that the current exemption expires on December 31, 2025. While that’s a long way off, with politics involved, you never know if that expiration date will stick.