Tax Savings Opportunities in Estate Freeze Transactions

An Application of the Black Scholes Model

Authors

  • James R. Hamill Anderson Schools of Management, University of New Mexico, Albuquerque, New Mexico 87131.
  • Joel S. Sternberg Department of Finance, University of Arizona, Tucson, Arizona 85721.

DOI:

https://doi.org/10.1016/1057-0810(95)90014-4

Abstract

Transfer tax valuation rules for interests in family businesses include a minimum value to reflect the option value of “junior” equity interests transferred tofamily members. We examine the option features of the junior interest and use the Black-Scholes model to identify situations in which an estate planner could structure a plan of ownership succession that results in undervaluation of the transferred interest. The Black-Scholes model may also be used to identify situations in which a lifetime ownership transfer should be avoided because of the minimum value rule.

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Published

1995-06-30

How to Cite

Hamill, J. R., & Sternberg , J. S. (1995). Tax Savings Opportunities in Estate Freeze Transactions: An Application of the Black Scholes Model. Financial Services Review: The Journal of Individual Financial Management, 4(1), 9–22. https://doi.org/10.1016/1057-0810(95)90014-4

Issue

Vol. 4 No. 1 (1995): Financial Services Review

Section

New Original Submission

License

Copyright (c) 1995 JAI Press Inc.

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