Family Business Owners and the Estate Tax - Part 1

Aug 16th 2009
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Family Business For many entrepreneurs and family business owners, the legacy and wealth they have worked so hard to build has long been threatened by the federal estate tax. Without proper planning, families can see up to 45% of their assets go to Uncle Sam rather than their intended beneficiaries (in some cases, certain assets can be subject to multiple levels of taxation totaling almost 75% once you consider federal estate and income tax as well as state inheritance taxes).

During the Bush administration, the federal estate tax was repealed starting in 2010, but only for one year, and is set to return in 2011 (Economic Growth and Tax Relief Reconciliation Act of 2001). Time and time again I am asked by my clients whether I believe the repeal will actually take place in 2010. Additionally, there are changes to various aspects of estate taxation that are being considered by the current administration.

The most recent research suggests that the federal estate tax only affects 1% of the general population. Essentially, the "un-lucky few" subject to the tax are an easy target as politicians spin things to make it seem like the tax only affects those who can afford to pay it! When we consider the general theme of the current administration's tax policies, it would seem they would be reluctant to give up the revenue that the estate tax generates

Furthermore, on May 11th the Treasury Department issued a report entitled General Explanations of the Administration's Fiscal Year 2010 Revenue Proposals, aka the "Green Book".  In the report, the temporary solution for the estate tax is to extend the 2009 exemption amounts and rates through 2010. This would mean that the exemption amount would remain at $3.5 million and the top rate would stay at 45% for 2010. Most estate planners are planning for similar levels to stay in place for 2011 and beyond. Bottom line… the estate tax isn’t going away!

So where do we go from here? We start planning! Family business owners who have accumulated substantial wealth need to sit down with their advisors to start planning to pass their assets and value on to the next generation. For those who have already created an estate plan, be certain to review that plan to ensure it still accomplishes your goals and objectives. Even in a few short years many things can change that will make an estate plan ineffective (i.e. legislative changes, family changes, economic factors

In light of the current recession, I am seeing lower values for business and real estate.  This would make now a great time to start transferring assets to ensure the wealth you worked so hard to create is preserved for your intended beneficiaries

Look for Family Business Owners and the Estate Tax – Part 2 in the coming weeks


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