The Section 303 Redemption is used primarily in cases where the decedent is a major stock holder in one or more corporations and the heirs wish to maintain control of the decedent's stock. 

 

Under the provisions of Section 303, the surviving family can sell a portion of the decedent's stock to the corporation. This transaction provides cash to pay the decedent's final expenses. The amount necessary to pay the decedent's estate taxes, funeral expenses, and administration fees limits the amount the family can redeem. 

 

The transaction is treated as an exchange, whereas if the decedent had sold a portion of his stock to the corporation during lifetime, the proceeds could be fully taxable as ordinary income. In this way, the stockholder accomplishes his or her goal: the taxes get paid and the majority of the stock held passes to the designated beneficiaries. 

 

Frequently, a corporation does not have the liquid funds necessary to purchase large amounts of stock. In this case, they purchase a life insurance policy on the life of the stockholder, using the death benefit to purchase the stock. 

 

One of the disadvantages of the 303 Stock Redemption is the difficulty in planning for its use during lifetime. Stock qualifies for the partial redemption only in the following situations: 

• The stock comprises more than 35% of the stockholder's adjusted gross estate
• The stockholder owns 20% or more of the stock of each of two or more corporations

   

It is hard to assess the adjusted gross estate before death. Even when an estate appears likely to qualify for a Section 303 Stock Redemption, there is no guarantee that it will. It is important to monitor estate assets to assure that there is not a subsequent disqualification. Some causes of disqualification could stem from the following factors:

• Other estate assets appreciating more than the stock interests
• The stock interests declining in value
• Some of the stock being sold or given away

 

 

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