Postmortem Estate Planning Techniques - Corporate Stock Redemption

Corporate Stock Redemption
If a decedent and their family own more than 50% of a corporation, there are some complex rules which might treat the redemption of stock as a dividend. Under Section 303 of the tax code, there is an exemption to the dividend treatment even if the deceased owned 100% of the stock. The amount paid to the heirs or estate of the decedent can be treated as a sale or exchange instead of dividend treatment.

To qualify for this favorable tax treatment, the deceased must have corporate stock making up 35% or more of their adjusted gross estate.

This special treatment is most suitable for families where a corporation represents a major asset of the family, and where the surviving shareholders want to continue to operate the business. In many cases, the redemption may be part of a buy/sell agreement between shareholders of a closely held corporation or a family owned corporation. Special Use Valuation


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