A. Use your children (or trusts for your children) as owners
of the Royalty Company to split income and tax it at their lower brackets (over
age 14). Let them pay for their own education.
1. This technique also reduces estate taxes because
a portion of the owner's estate is now owned by family members.
B. What if the Royalty Company was owned by tax-exempt entities,
such as owner's IRA or Roth IRA? The stream of income becomes tax-free and allows
a huge potential revenue build-up. Note: Use caution with this technique since
IRS has published notices about below-market transfers of income under these
arrangements, warning taxpayers not to engage in certain transactions.
1. Sale of business would be tax-free to the IRS
or Roth IRA as well.
2. Of course, there is no access to the funds until
you reach age 59 1/2, so make only a portion of the ownership tax-exempt.
C. Roth IRA for Children - Your children can work for you
and set up a Roth - $3,000 per year in 2003. The children's Roth IRAs can then
become investors in the Royalty Company. Access to an IRA and Roth IRA for education
and medical needs is without penalties.
