1202 is a little know or understood provision of the Internal Revenue Code that excludes the greater of (1) $10M or (2) ten times basis in original issue stock. To qualify for 1202, the company must be a C corporation and have aggregate assets of $50M or less at stock issuance. The investor must acquire shares in the original stock issuance. The company must be engaged in an active trade or business. The stock (QSBS) must be held for at least five years.
In addition, if you want to sell your QSBS before five years, 1045 allows you to rollover your QSBS into replacement QSBS.
There are a lot of complexities not mentioned in this post. Contact me to learn more.
While each situation is different, I think in most cases, the decedent should keep his family informed of his or her estate plan. If the decedent wants to treat his children or others differently, the decedent should communicate with that family member why. It may be because a family member has special needs or it may be because that family member has exhibited behavior that demands action. For example, if the family member has committed a crime or shown a tendency to bad behavior, it is reasonable to exclude or reduce that family members inheritance.
Notifying that family member should help avoid a will contest, or, if not, significantly improve the estate’s chances of a successful result in arbitration or litigation. Of course, the family member may file suit anyway, and the estate may end up settling the matter to avoid the costs of litigation. Nevertheless, in most cases, it is better to notify the family member in writing since the estate will then be in a much stronger position if a law suit is filed.
About Grady Dickens
I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.