By: Martin M. Shenkman, CPA, MBA, JD
Shareholders of some portion or all of the stock of a corporation may sign an agreement, referred to as a "Voting Trust Agreement" in which they authorize a named person to vote shares of stock for them. This can be used to keep certain blocks of stock voting together. For example, the Smith and Jones family each own 50% respectively of the stock in ABC Corporation, Inc. Mr. Smith has given shares of stock to his wife and children in order to achieve various tax and other objectives. However, he realizes that if a child refuses to vote his way, the 50/50 split that has served the company throughout its history could be undermined. So, Mr. Smith and all the Smith family shareholders sign a voting trust agreement giving Mr. Smith the authority to vote their shares. Exercise caution in using such an agreement there are a host of tax and legal issues. In particular, consult with your estate planner about Code Section 2036 issues (in English, this could cause all the shares to be taxed in Mr. Smith's estate even if he made gifts of them).
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