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Section 303 of the Internal Revenue Code permits a corporation to redeem part
of a deceased owner's stock without the proceeds received by the estate of
beneficiaries being considered a dividend. The corporation then can serve as a
tax-free source of funds to meet the deceased owner's estate settlement costs.
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To Qualify for the Plan:
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Stock redeemed cannot exceed the total of federal and state death taxes and
funeral/administration expenses.
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Ownership in corporation must exceed 35 percent of adjusted gross estate; two
corporations may be combined to exceed the 35 percent gross estate if 20 percent owned in each.
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Stock must be included in taxable estate or person owning stock must have
liability for taxes/expenses.
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Additional Advantages to the Corporate Owner:
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Estate is protected from a forced sale of assets to pay estate settlement
costs.
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The family can maintain corporate ownership and control.
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The corporation can buy Life Insurance on the owner to guarantee cash for the
redemption.
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Insurance premiums can be paid in installments.
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Insurance proceeds will be received income tax-free by the corporation.
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