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
Related Articles
  1. Trading Strategies

    Adjust Market Strategies To Elevated Risk

  2. Fundamental Analysis

    How to Create a Personal Risk Management Plan

  3. Investing Basics

    Want to Beat the Market? Take on Some Risk

  4. Trading Strategies

    Three Types Of Profit Protection Stops

  5. Professionals

    Worried About Stocks? Try on Convertibles

RELATED TERMS
  1. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  2. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  3. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  4. Gross Exposure

    The absolute level of a fund's investments.
  5. Priori Loss Estimates

    A technique used by insurance companies to calculate loss reserves.
  6. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...

RELATED FAQS

  1. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
  2. What are common delta hedging strategies?

    Learn about common delta hedging strategies, including how to make a position in options delta neutral by offsetting risk ...
  3. How does being overweight in a particular sector increase risk to a portfolio?

    Learn about the risks of having a portfolio that is overweight in a particular sector and how investors should regularly ...
  4. What are the primary risks an investor should consider when investing in the retail ...

    Learn about the primary risks of investing in the retail sector, such as bad economic conditions, regulation, competition ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!