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Owners of such businesses know they must sell at least part of the business to pay estate taxes.

This is something I have long been confused by.

If you are trying to avoid estate taxes, then why do you continue to hold 100% (or close to it) of the assets until you die?

Wouldn't it be better once the heir's graduate and start earning for the family business that you pay them in shares of the company?

Is the only reason they don't do this is because the share of company earned each year would be taxed as ordinary income?

I will qualify this as being limited to those cases where there is a family business and the head of the family lives to quite a mature age.
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