A(n) ________ attempts to minimize taxes on a family business passed from one generation to the next by creating two classes of stock-one for the parents (preferred voting stock), whose value is locked in, and another for the children (nonvoting common stock), whose value reflects the market value of the business.
A) grantor-retained annuity trust
B) estate freeze
C) bypass trust
D) buy/sell agreement

Question

Quizplus · Accepted Answer

This is describing an estate freeze, which is a tax planning strategy to minimize taxes when passing a family business from one generation to the next. It involves creating two classes of stock, one for the parents (preferred voting stock) and another for the children (nonvoting common stock). This allows the parents to retain control while locking in the value of their preferred stock, and allows the children to benefit from any future growth in the market value of the business reflected in the value of their nonvoting common stock.

A(n) ________ Attempts to Minimize Taxes on a Family Business