Day 1 October 21, 2015:

Transcription

1 BUSINESS PLANNING WITH S CORPS, PART 1 & PART 2 First Run Broadcast: October 21 & 22, :00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00 a.m. P.T. (60 minutes each day) This program will provide you with a practical guide to business planning with S Corps and how they differ from C Corps and LLC/partnerships. The program will cover practical operational and finance considerations, including planning for the distribution of cash versus other property, making the most of tax attributes (including losses), the one-class of stock restriction and basis in both equity and debt. Advanced issues involving equity compensation, fringe benefits, and the use of retirement plans to distribute property will also be discussed. The panel will also cover planning for the eventuality of a sale of all or a portion of the S Corp. This program will provide you with a real world guide to advanced business planning considerations with S Corps and the tradeoffs of using them versus other types of entities. Day 1 October 21, 2015: Business planning with S Corps and comparison to other types of entity Practical comparison of S Corps with C Corps and LLCs, and circumstances in which each is best used Operational and shareholder considerations allocating tax attributes, cash v. property distributions Finance issues equity v. debt, basis in each, one class of stock restriction Equity compensation planning restricted stock, options, profits interests Day 2 October 22, 2015: Fringe benefit planning and the use of qualified plans to distribute profits Employment tax planning opportunities in S Corps, including new 3.8% tax on net investment income Mergers and sale issues sale of the whole company or portion, asset v. stock deals, treatment of intangibles, and IRC Section 338(h)(10) Overview of Employee Stock Ownership Plans Review of special estate planning issues for S Corps Speaker: Paul Kaplun is a partner in the Washington, D.C. office of Venable, LLP where he has an extensive corporate and business planning practice, and provides advisory services to emerging growth companies and entrepreneurs in a variety of industries. He formerly served as an Adjunct Professor of Law at Georgetown University Law Center, where he taught business planning. Before entering law practice of law, he was a Certified Public Accountant with a national accounting firm, specializing in corporate and individual income tax planning and compliance. Mr. Kaplun received his B.S.B.A., magna cum laude, from Georgetown University and J.D. from Georgetown University Law Center.

2 Norman Lencz is a partner in the Baltimore, Maryland office of Venable, LLP, where his practice focuses on a broad range of federal, state, local and international tax matters. He advises clients on tax issues relating to corporations, partnerships, LLCs, joint ventures and real estate transactions. He also has extensive experience with compensation planning in closely held businesses. Mr. Lencz earned his B.S. from the University of Maryland and his J.D. from Columbia University School of Law. Christopher Davidson is an attorney in the Baltimore, Maryland office of Venable, LLP, where he advises clients on a wide variety of federal and tax matters, including in the areas of corporate formations, financings, and transactions. His focus is on foreign and domestic tax matters for partnerships, LLCs, and corporations. He is a frequent contributor to professional tax journals. Mr. Davidson received his B.A., summa cum laude, from the University of Maryland, his J.D. from the University of Maryland School of Law, and his LL.M. from New York University.

3 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Business Planning with S Corps, Part 1 Teleseminar October 21, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER October 14, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

4 VT Bar Association Continuing Legal Education Registration Form Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT Fax: (802) PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name Middle Initial Last Name Firm/Organization Address City State ZIP Code Phone # Fax # Address Business Planning with S Corps, Part 2 Teleseminar October 22, :00PM 2:00PM 1.0 MCLE GENERAL CREDITS VBA Members $75 Non-VBA Members $115 NO REFUNDS AFTER October 15, 2015 PAYMENT METHOD: Check enclosed (made payable to Vermont Bar Association) Amount: Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # Exp. Date Cardholder:

5 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: October 21, 2015 Seminar Title: Business Planning with S Corps, Part 1 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

6 Vermont Bar Association CERTIFICATE OF ATTENDANCE Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: October 22, 2015 Seminar Title: Business Planning with S Corps, Part 2 Location: Credits: Program Minutes: Teleseminar - LIVE 1.0 MCLE General Credit 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

7 BUSINESS PLANNING WITH S CORPORATIONS Paul Kaplun, Venable, LLP - Washington, D.C. ptkaplun@venable.com / (202) Norman Lencz, Venable, LLP Baltimore, Maryland nlencz@venable.com / (410) Christopher Davidson, Venable, LLP Baltimore, Maryland csdavidson@venable.com / (410)

8 Comparison of Different Entity Forms 2

9 Types of Business Entities Legal Limited liability company Partnership General Limited Limited liability Corporation Other 3

10 Types of Business Entities Tax Disregarded Sole proprietorship Branch Partnership General Limited Corporation C S 4

11 Limited Liability Company No limitations on ownership Limited liability for all owners No restrictions on owner participation in management (for managing members) May be a disregarded entity, partnership, or corporation for federal tax purposes 5

12 General Partnership No limitations on ownership General partners liable for all debts of partnership No restrictions on owner participation May be a disregarded entity, partnership, or corporation for federal tax purposes 6

13 Limited Partnership No limitations on ownership General partners liable for all debts of partnership; limited partners not liable Limited partners may not actively participate in management May be a disregarded entity, partnership or corporation for federal tax purposes 7

14 Limited Liability Partnership No limitations on ownership Personal liability generally limited to own wrongful acts No restrictions on owner participation Some states only allow certain types of businesses to be conducted in limited liability partnership form May be a disregarded entity, partnership, or corporation for federal tax purposes 8

15 Corporation No limitations on ownership Limited liability for all owners No restrictions on owner participation in management Is a corporation for federal tax purposes 9

16 Business Considerations Ease of formation Ownership/equity structure Liability of owners Management of business Transferability of interests State law or regulatory requirements 10

17 Tax Considerations Taxation of profits Income Employment Utilization of losses Transfer of assets into and out of business Sale of business Other 11

18 Tax Considerations Taxation at entity or owner level Entity level C corporation Owner level Disregarded entity Partnership S corporation 12

19 C Corporation Generally not advantageous When used Corporate form required by law S corporation eligibility requirements can t be met To take advantage of corporate graduated rates Historic C corporation and conversion to passthrough status cost prohibitive State tax considerations Tax-exempt or foreign owners Significant foreign operations 13

20 Passthrough Entities Disregarded entity Partnership S corporation 14

21 C Corporation Versus Passthrough Entity C corporation Income subject to double tax Losses can only offset corporate income May generally use any year end Limited availability of cash method of accounting Corporate rates apply to corporation s income Passthrough entity Income generally subject to single level of tax Losses may offset owner s income from other sources Choice of year end limited Can generally use cash method of accounting Owner s rates apply to entity s income 15

22 Disregarded Entity Qualification Not a per se corporation or an entity for which an election has been made to be treated as association QSub is exception For federal tax purposes, has a single owner Taxation of entity s activity is at owner level Movement of assets between owner and entity is of no tax consequence 16

23 Partnership Qualification Not a per se corporation or an entity for which an election has been made to be treated as association For federal tax purposes, has more than one owner Taxation of partnership s activity is at partner level 17

24 S Corporation Qualification Must be a small business corporation Domestic corporation that is not an ineligible corporation Only individuals, certain trusts, estates, and tax-exempt organizations as shareholders No nonresident aliens as shareholders Limitation on number of shareholders One class of stock Election by corporation, consented to by shareholders Shareholders Agreement 18

25 S Corporation Taxation of S corporation s activities is at shareholder level Certain corporate level taxes may also apply These taxes generally only apply to S corporations that were formerly C corporations Built-in gain tax Passive investment income tax LIFO recapture tax 19

26 Qualified Subchapter S Subsidiary (QSub) Qualification Domestic corporation that is not an ineligible corporation Wholly owned by parent S corporation QSub election in effect Taxation Generally treated as a disregarded entity Items of income, deduction, credit, etc. treated as those of parent S corporation 20

27 Partnership Versus S Corporation Key differences Qualification requirements Allocation of income and losses Basis for entity-level debt Treatment of payments to owners for services rendered Equity based compensation Distributions of property Entity-level basis adjustments Treatment of hot assets 21

28 Formation Partnership No limitation on ownership or equity structure Tax-free under Section 721 No control requirement S corporation Limitation on types and number of shareholders and may only have one class of stock Tax-free under Section 351 Control requirement 22

29 Operational and Shareholder Considerations 23

30 Operations Partnership Income taxed at partner level May specially allocate items, provided allocation has substantial economic effect Losses subject to basis, atrisk and passive activity limitations Partner s basis includes allocable share of partnership liabilities S corporation Income taxed at shareholder level Items generally allocated on a per/share, per/day basis Losses subject to basis, atrisk and passive activity limitations Shareholder s basis includes amounts loaned by the shareholder to the corporation 24

31 Operations Partnership Elections generally made at partnership level Must separately state items that could affect partner s computation of tax Limitations generally apply at partner level S corporation Elections generally made at S corporation level Must separately state items that could affect shareholder s computation of tax Limitations generally apply at shareholder level 25

32 Effect of Election on Shareholders Shareholders must take into account pro rata share of S corporation s items of income, loss, deduction or credit ( S corporation items ) S corporation items, the separate treatment of which could affect shareholder s liability for tax, must be separately stated Other S corporation items make up corporation s nonseparately computed income or loss 26

33 Effect of Election on Shareholders S corporation items are included in determining tax of shareholder for the shareholder s taxable year in which (or with which) the taxable year of the S corporation ends 27

34 Allocating S Corporation Items Generally, items must be allocated on a per/share, per/day basis (pro rata allocation) May elect to close the books in allocating S corporation items among affected shareholders if there is a: Complete termination of a shareholder s interest, or Qualifying disposition 28

35 Utilizing Losses Losses and deductions taken into account by a shareholder cannot exceed the shareholder s basis in stock and indebtedness Indefinite carryover Losses are generally personal to the shareholder Exception for transfers between spouses or incident to divorce 29

36 Cash Distributions C corporation Generally taxable as a dividend S corporation Generally tax free to the extent of shareholder basis If S corporation has subchapter C earnings and profits, must consider AAA balance Partnership Generally tax free to the extent of partner basis 30

37 Property Distributions C corporation Corporation recognizes gain, but not loss FMV generally taxable as a dividend FMV basis in property S corporation S corporation recognizes gain, but not loss FMV generally tax free to the extent of shareholder basis FMV basis in property Partnership Partnership generally does not recognize gain or loss Generally tax free to extent of partner basis Generally carryover basis in property 31

38 Finance Considerations 32

39 Debt/Equity Distinction Basis Thin capitalization issues Interest income and expense Disproportionate to ownership 33

40 Determining Adjusted Basis in Stock and Debt Why important Serves as limit on amount of flow-through losses that a shareholder may claim (cannot exceed shareholder s basis in stock and debt) Affects how distributions are taxed Enters into computation of gain or loss on sale of stock and/or repayment of loans made to the S corporation 34

41 Stock Basis Original basis computed in same manner as stock in a C corporation For example, if the stock is purchased the purchase price represents initial basis Section 1367 provides for adjustments unique to S corporation stock 35

42 Adjustments to Basis Section 1367 basis adjustments Increased for: Separately and nonseparately stated items of income and gain (including tax-exempt income) Excess depletion 36

43 Adjustments to Basis Section 1367 basis adjustments Decreased for: Distributions by the corporation that are not includible in income under the S corporation distribution rules Separately stated loss and deduction items Nonseparately computed loss Expenses of the corporation that are not deductible in computing taxable income and are not properly chargeable to a capital account Amount of a shareholder s depletion deduction 37

44 Stock Basis Ordering rule for adjustments Items increasing basis Nontaxable distributions Noncapital, nondeductible expenses Any separately and nonseparately computed items of loss or deduction Can elect to take into account deductible items before noncapital, nondeductible expenses Basis may not be reduced below zero 38

45 Stock Basis Separate share rule Must compute stock basis in each share However, spillover rule applies for utilizing losses and in determining taxability of distributions Adjustments are made at end of S corporation s year However, if stock is disposed of, adjustments are made immediately prior to disposition 39

46 Debt Basis Only direct loans to S corporation taken into account No basis for serving as guarantor or co-maker No basis for loans made by related parties, such as a partnership or another corporation May be able to restructure related-party loans to create basis Recently issued Regulations require bona fide indebtedness of the S corporation that runs directly to the shareholder Loan from third party to shareholder, followed by shareholder loan to S corporation, should create basis 40

47 Debt Basis Losses in excess of stock basis may be claimed against debt basis Such losses reduce debt basis Net positive adjustments to basis increase basis in reduced basis debt first If reduced basis debt is repaid, may be gain on repayment Gain on written debt will generally be capital Gain on unwritten (open account) debt will be ordinary 41

48 One Class of Stock Governing provisions Corporate charter, articles of incorporation, by-laws, applicable state law, and binding agreements relating to distribution and liquidation proceeds Commercial contractual agreements are not governing provisions unless principal purpose is to circumvent one class of stock requirement Includes leases, employment agreements, and loan agreements 42

49 One Class of Stock Each outstanding share of stock must have identical rights to distribution and liquidation proceeds Determination is made based on governing provisions Differences in voting rights are permitted For example, an S corporation may have voting and nonvoting common stock outstanding 43

50 One Class of Stock Buy-sell and redemption agreements Agreements to redeem or purchase at the time of death, divorce, disability or termination of employment disregarded Other agreements disregarded unless: Purchase price is significantly different from fair market value of stock (book value safe harbor), and Principal purpose is to circumvent one class of stock requirement 44

51 One Class of Stock Instrument, obligation or arrangement treated as equity under general principles of federal tax law Creates a second class of stock if principal purpose of instrument, obligation or arrangement is to circumvent S corporation eligibility requirement 45

52 One Class of Stock Safe harbors for certain instruments, obligations or arrangements Short-term unwritten advances ($10,000 or less) Proportionately-held obligations Straight debt 46

53 One Class of Stock Straight debt Written promise to pay sum certain on demand or specified date Interest rate and interest payment dates not contingent on profits, borrower s discretion or other similar factors Not convertible Creditor is an individual (other than nonresident alien), an estate, a trust that is a permissible S shareholder, or a person actively and regularly engaged in business of lending 47

54 One Class of Stock Call options, warrants and similar instruments Generally, a second class of stock if on the date of issuance, material modification or transfer from permissible to impermissible shareholder: Substantially certain to be exercised, and Strike price substantially below fair market value of underlying stock Two exceptions and a safe harbor 48

55 One Class of Stock Call options, warrants and similar instruments Exceptions Compensatory options Options issued to a person actively and regularly engaged in trade or business of lending in connection with commercially reasonable loan Safe harbor Strike price equal to at least 90 percent of fair market value of underlying stock on testing date 49

56 One Class of Stock Not treated as outstanding stock (and therefore not a second class of stock) Deferred compensation arrangements Nonvested restricted stock for which no Section 83(b) election is made 50

57 Equity Compensation Considerations 51

58 Compensatory Matters Partnership Partners not employees Passthrough partnership income generally treated as earnings from selfemployment Incentive stock option plans not available S corporation Shareholders may be employees Passthrough S corporation income not earnings from self-employment Incentive stock option plans and other stockbased compensation arrangements available 52

59 Restricted Stock Vested Nonvested Section 83(b) Election Comparison to profits only interest in a partnership 53

60 Fringe Benefits and Qualified Plans 54

61 Fringe Benefits Restrictions applicable to >2% shareholders Health and accident benefits Cafeteria Plans Employer-provided meals and lodging Group-term life insurance 55

62 Qualified Plans Sponsorship Employee Stock Owner Plan (ESOP) Borrowing opportunities 56

63 Employment Tax Planning 57

64 Shareholder/Employee and Employer Treatment Withholding Income and withholding or issuance of stock Reporting Form Deduction of company-related expenses Deductions for company-provided health insurance Employment taxes 58

65 Shareholder/Employee and Employer Treatment Workers Compensation Timing of income Character of income Unemployment insurance Comparison to partner and partnership treatment Planning opportunities 59

66 New Tax Under Section 1411 New 3.8% Medicare Tax on investment income Effective beginning in 2013 Specifically, for individuals, the new tax applies to the lesser of (i) net investment income or (ii) the excess of modified adjusted gross income over a threshold amount. 60

67 New Tax Under Section 1411 (con t) Terminology Net investment income Threshold amount Modified adjusted gross income 61

68 New Tax Under Section 1411 (con t) Net investment income means the (i) sum of (a) gross income from interest, dividends, annuities, royalties and rents (other than income from an active business for purposes of Section 469 [passive loss rules] unrelated to financial trading) (an Active Business ); (b) gross income from a passive activity for purposes of Section 469 or a financial trading business; and (c) net gain attributable to the disposition of property other than property from an Active Business; over (ii) the deductions properly allocable to such gross income or gain. 62

69 New Tax Under Section 1411 (con t) Threshold amount means (i) $200,000 for single individual taxpayers; (ii) $250,000 for married individual taxpayers filing a joint return; (iii) $125,000 for married individual taxpayers filing a separate return These amounts are not indexed. Thus, with inflation, more and more taxpayers will become subject to Section 1411 Modified adjusted gross income means adjusted gross income increased by the excess of (i) the amount excluded under the Section 911 foreign earned income exclusion (the Section 911 Exclusion); over (ii) the amount of any deductions or exclusions disallowed due to the Section 911 Exclusion. 63

70 New Tax Under Section 1411 (con t) In S corporation context, Section 1411 will be applicable when the shareholder does not materially participate in the activity of the S corporation Material participation requires that the taxpayer be involved on a regular, continuous, and substantial basis in the activity. The Regulations under Section 469 interpret this standard by providing that a taxpayer must meet one (1) of seven (7) tests (three (3) in the case of limited partners in a partnership) in order to be considered to be materially participating in an activity. Use of S corporations for Section 1411 planning purposes 64

71 New Tax Under Section 1411 (con t) A B C 33% 33% 33% LLC A B C S Corp Management Co 1% 65

72 Mergers and Acquisitions 66

73 Mergers & Acquisitions Matrix Assets Stock Taxable Transactions 1060 Allocation Depreciation Amortization Section 338 Elections Non-Taxable (Tax-Deferred) Transactions Type A Reorganization Type C Reorganization Forward Triangular Merger Type B Reorganization Reverse Triangular Merger 67

74 Sale of Interest in Entity C corporation Shareholder recognizes capital gain or loss Corporation s basis in assets not adjusted S corporation Shareholder recognizes capital gain or loss Corporation s basis in assets not adjusted Partnership Partner generally recognizes capital gain or loss May recognize ordinary income or loss if Section 751 property Adjustment to partnership s basis in assets 68

75 Sale of Entire Enterprise Entity Interests C corporation No corporate level gain or loss Shareholder recognizes capital gain or loss No basis step-up for purchaser S corporation No corporate level gain or loss Shareholder recognizes capital gain or loss No basis stepup for purchaser Partnership No partnership gain or loss Partner recognizes capital gain or loss (but ordinary income if Section 751 assets) Basis step-up for purchaser 69

76 Sale of Entire Enterprise-Assets of Entity C corporation Corporate level gain or loss Shareholder recognizes capital gain or loss on liquidation Basis step-up for purchaser S corporation Corporate level gain or loss Passes through and adjusts shareholder basis Shareholder recognizes additional capital gain or loss on liquidation Basis step-up for purchaser Partnership Partnership level gain or loss Passes through and adjusts partner basis Partner recognizes additional gain or loss on liquidation only under certain circumstances Basis step-up for purchaser 70

77 Planning for Sale of Business Pre-disposition due diligence Section 1362(f) relief Modeling Asset sale (or 338(h)(10)) versus stock sale Computing gross-up amounts 71

78 Taxable Stock vs. Asset Sale TARGET S/H TARGET Adj. Basis = $50 FMV = $150 Fmv - $150 Adj. Basis - $50 Sale of Assets C Corp S Corp Gain: $150 - $50 = $ % = $ Target Proceeds = $116 $150 Distribution = $116 $150 Gain/Income to S/H = $66 $100 Tax = $13 (20%) $20 (20%) Net Proceeds = $103 $130 Sale of Stock C Corp/S Corp Gain: $150-$50 = $100 20% = $20 Proceeds = $130 72

79 Asset Sale Shareholders C Corp/S Corp Buyer FMV Assets: $500 Tax Basis Assets: $100 Buyer Combined Federal/State Tax Rate: 40% Depreciable Life of Assets: 5 years Computation of Tax Bonus to Buyer: Depreciable Basis Increase ($500-$100): $400 ($80/yr) Annual Additional Tax Savings: $32 Present Value of Future Dep. Deductions (at 4% discount rate): $142 Buyer should be willing to pay $142 more for an asset purchase as compared to a stock purchase. 73

80 Section 338(h)(10) Election Must purchase 80 percent of stock in 12 months (like 338). Election filed jointly by purchaser and seller. Only available where selling corporation is a Subchapter S corporation or a member of a consolidated group. More useful to buyer because the seller (or selling group) bears the burden of the taxes. 74

81 Treatment of Intangibles Tax Treatment of Goodwill Covenant Not to Compete Covenant vs. Consulting Agreement 75

82 Planning for Sale of Business Use of limited partnership or LLC to avoid termination of S election 76

83 Use of Partnership to Avoid Termination S Corporation S corporation transfers operating assets (and related liabilities) and buyer transfers cash to new partnership in exchange for partnership interests. Flow-through status is preserved because ineligible investor is partner, not shareholder in S corporation. Assets and liabilities Partnership interests New Partnership Cash Buyer If assets (e.g., cash) is distributed from partnership to S corporation, consider application of disguised sale rules. 77

84 Planning for Sale of Business Section 1374 built-in gain tax planning Bifurcated asset/stock sale 78

85 Bifurcated Asset/Stock Sale Shareholders (2) Cash (3) Stock (3) Cash S Corporation (1) Non- BIG assets Buyer (1) Cash (1) S Corporation sells non-big assets to Buyer for cash; Buyer gets step-up in basis. (2) S Corporation distributes proceeds from sale to shareholders (or Buyer increases purchase price for stock). (3) Shareholders sell S corporation stock to Buyer; no Section 338(h)(10) election is made. 79

86 ESOPS and S Corporations 80

87 Determining Whether the S Corporation is a Good Prospect Succession Planning Tool/Employee Benefit Corporate Economic Benefit Company Size Payroll Base Continuity of Management Alignment of Employee Shareholder Interests Abuses 81

88 Estate Planning for S Corporations 82

89 Types of Shareholders Shareholder Qualification Planning with Trusts Grantor Trusts Two-Year Trusts Qualified Subchapter S Trusts (QSSTs) Electing Small Business Trusts 83

90 Planning Opportunities Planning Opportunities Recapitalizations Buy-Sell Agreements Sales Gifts Section 6166 Deferral of Payment of Estate Taxes Section Redemption 84

91 Illustration of Recapitalization/ Estate Freeze Husband and wife owns 100% of single class of common stock of S corporation. Exchange of existing common for two new classes of voting and non-voting common stock (identical in all respects except for voting rights). Gifts to trusts for the benefit of their children of non-voting common stock up to Federal gift tax exemption. Any remaining non-voting common stock could be sold to trusts for the benefit of the children in exchange for promissory notes. Each trust will be a grantor trust. As payments are made under the promissory notes, no capital gain recognition will occur. Each of the trusts will be respected as a separate entity for estate and gift tax purposes, thereby removing the stock from the respective parent s estate upon death. If any portion of the promissory notes are unpaid at the time of death, such unpaid balance would be an asset of the respective estate. 85