Tax Savings Opportunities in Estate Freeze Transactions
An Application of the Black Scholes Model
DOI:
https://doi.org/10.1016/1057-0810(95)90014-4Abstract
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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