Berman & Asbel, LLP

How to use trusts to pass on profits from angel investments

Angel investors in Pennsylvania might have their attention on helping a start-up company succeed, but the profits of that future success should also be considered during estate planning. Financial planners suggest setting up trusts where gifts of company stock could be placed. If the investment proves fruitful and the stock value rises, then the proceeds could be available to heirs and not be included in the investor's estate for federal estate tax purposes.

The terms of a trust can be designed to ensure specific goals. Provisions could allow the beneficiaries to only remove assets to buy a home or pay college tuition. In addition to potentially limiting access by young heirs, a trust could provide protection from claims by creditors. The possibility of a divorce could also be addressed by a trust, which could shield assets from a divorce settlement.

For people whose estates might surpass the tax exemption limit of $5.45 million per individual, a trust could serve as an important tax shelter. Contributions to the trust could be made over the course of a person's lifetime. By effectively giving away the stock to a trust, its future appreciation in value will no longer be considered part of the individual's estate.

A person whose estate contains significant assets like company stock and real estate might learn about beneficial estate planning strategies by consulting an attorney. The state and federal tax laws that might apply to the individual's specific financial situation could be researched by an attorney. Trusts could be designed to transfer funds and property to heirs privately.

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