Passing Your Business To Your Heirs If you want your descendants to save on inheritance taxes find out why now's a good time to start handing over the family business.

Most business owners still in their operating prime would rather not think about handing over the family business to the next generation--at least not until they're ready to retire. By then, though, it may be too late to come up with the kinds of tax-saving strategies that could save your heirs a bundle later on.

"The earlier you start, the better," says Sanford J. Schlesinger, an estate attorney with Schlesinger, Gannon & Lazetera in New York City. That's partly because your company is likely to be worth less earlier on, so it will cost less taxwise to transfer it earlier. If you wait until your $1 million business has grown to $50 million, gifting it to your children will cost millions in gift tax. Worse yet, if you leave it to them at your death, they might just have to sell the business to cough up the estate tax.

Since that's the last thing you want, consider doing a little advance planning now to make sure your business stays in the family. One option is to begin transferring percentages to your heirs upon your business's inception, says Schlesinger. For example, keep 70 percent of the business for yourself-retaining complete control over day-to-day operations--and create a trust for each of your three children, putting 10 percent of the business in each. You'll still owe gift tax, but because each trust holds a minority share in a private, illiquid company, you'll save a considerable amount of money--anywhere from 20 percent to 45 percent, he says. "The value of that 10 percent might be small now," says Schlesinger, "but 10 years from now, it could be worth a fortune."