Gifted shares of a private family corporation

Valued in the millions at what time?

Does that mean the timber farm was owned by a corporation? Were there any other shareholders?

You say there was no tax paid - but were gift tax returns filed?

Do you mean to her children?

First of all she doesn't need to die broke. If her total assets are worth less than about $5.4 million, there won't be any estate tax anyway.

Also, it is generally best for kids to inherit highly appreciated property than to have it given to them while the donor is alive. If no gift tax return was file and no gift tax paid, it would all be counted in the estate for estate tax purposes anyway.

They'd better talk to a tax planning professional, or they could make the tax situation worse. They may think they are saving, but if they are caught by the IRS, they might not only pay higher estate taxes, but higher income taxes if the kids eventually sell their interests in the property.

Gifting can work, but it has to be planned years in advance for it to work, because it takes advantage of the annual gift tax exemption (currently $14,000 per year). Any gifts that are more than that will necessarily be included in the deceased's estate anyway.

They need to talk to a tax professional.

The property was valued in the mid-90's.

There are a total of 1600 shares with a street value of $13,000-$15,000 per share.

The timber farm was owned by the corporation and there were no other shareholders.

There was no gift tax return filed. What IS a gift tax return, anyway?

I'm going to strongly second Mr. Bronstein's recommendation to talk to a tax professional. If your valuation numbers are correct (the IRS or your tax professional may disagree) you are talking about a family corporation worth $20M-24M.

On the surface, the corporation president's gifting recommendation seems like a terrible idea with the potential to cost the children hundreds of thousands or even millions of dollars in unnecessary Capital Gain & NIIT taxes while saving very little in estate tax. Get professional advice. Soon!!

So the corporation is worth over $20 million. You left out a whole lot of information. That's a good reason to understand that this situation is much too complicated to deal with in a forum like this.

I'll assume it all went to his widow when he died. In that case no estate tax would have been owed - probably. Just when did he die? That could make a huge difference.

It's IRS Form 709, and is required to be file in any year when a person makes any gift to any individual in excess of the annual exclusion amount (currently $14,000 per donor per donee).

The fact that you don't know that is conclusive proof that this is way over your head. See a tax preparation professional. As it is the estate tax will probably be in the neighborhood of $6 million. With proper planning you might have saved $2 million of that or even more. At this point the most you can save is a few thousand.

But even for that savings, you need to act quickly, and do so in the proper way. Get a professional to help.

I concur that speaking with a real estate planning pro is warranted. Keep in mind that perhaps 90% of the attorneys who practice estate planning will find this over their head. You want an estate planning attorney with actual experience in large estates and wealthy clients.

Actually, gifting some shares in the corporation may have some estate planning value - there is a discounted valuation for partnership interests, due to lack of complete control, etc. But structuring such an estate plan is not for the inexperienced or feint of heart.