Estate shifting is a resourceful method offered by estate planners through which individuals legally "shift" their business activity or investments to their descendants without taxation.

Who might use this technique?

- Successful entrepreneurs who want to avoid increasing their estates via new business ventures, while giving the next generation an opportunity to "get their feet wet" operating the business.

- Those who are economically comfortable and want to avoid taxes on increases in their estate values.

- Individuals who are beginning a new business or investment venture and want their children or grandchildren to benefit from the success of the venture or investments.

How does estate shifting work? Estate shifting refers to a variety of strategies designed to "shift" the appreciation in a current business to junior generations.

As an example, assume parents are apartment developers and they believe they have an ideal location for a new venture. The parents could contribute seed money to an entity owned by and for the benefit of their descendants. The seed money enables the bank to loan the funds for the real estate development to the entity.

When the entity increases in value based on the completion of the project, the appreciation in value is held in the entity. In effect, the parents have "shifted" the appreciation in the investment opportunity to their descendants, since they are the entity owners.

How does the client benefit from the use of estate shifting?

- The parents are able to take advantage of a business or investment opportunity without increasing their estates, while providing a business opportunity for children or grandchildren.

- The parents are able to control the business or investment if desired or they may merely act as consultants, so that the business or investment will have the benefit of their seasoned advice.

- The parents are compensated for their personal services in developing and managing the business or investment opportunity along with their children.

What does the estate planner do in these engagements? The attorney advises the clients of the potential benefits of using estate shifting as part of an ongoing estate planning relationship. When the clients encounter a business or investment opportunity that is a suitable candidate for estate shifting, the attorney will design the structure and prepare the necessary documentation to implement the plan. Planning of this sort is just smart if it makes sense in the particular circumstance.

— Steve Greenwood is an estate planning attorney in Westlake Village and can be reached at 277-5020.