Which technique is identified as a wealth planning method to freeze the value of a business for transfer?

Which technique is identified as a wealth planning method to freeze the value of a business for transfer?

• A. ESOP
• B. Family limited partnership
• C. Installment sale
• D. S-corporation election

Answer: (C)

The idea being tested is using a wealth transfer technique that fixes the business’s value at today’s level so future growth goes to the next generation. An installment sale does this by selling the business (or a controlling stake) to a family member or trust and financing the sale with a promissory note. The owner transfers ownership now, but continues to receive payments over time, while the value of the asset is effectively locked in at the sale date for estate purposes. Any appreciation after the sale belongs to the buyer, not the seller, which reduces the value of what could be taxed in the estate and shifts future growth to the successor. The seller benefits from ongoing cash flow via the note and can diversify, while heirs benefit from the transfer of future appreciation. Other techniques exist for transferring wealth, but this one specifically targets fixing current value while allowing future growth to move with the transfer.

The idea being tested is using a wealth transfer technique that fixes the business’s value at today’s level so future growth goes to the next generation. An installment sale does this by selling the business (or a controlling stake) to a family member or trust and financing the sale with a promissory note. The owner transfers ownership now, but continues to receive payments over time, while the value of the asset is effectively locked in at the sale date for estate purposes. Any appreciation after the sale belongs to the buyer, not the seller, which reduces the value of what could be taxed in the estate and shifts future growth to the successor. The seller benefits from ongoing cash flow via the note and can diversify, while heirs benefit from the transfer of future appreciation. Other techniques exist for transferring wealth, but this one specifically targets fixing current value while allowing future growth to move with the transfer.