Massachusetts Estate Planning & Asset Protection Blog

Family-Owned Businesses and The Estate Tax

Posted by Dennis Sullivan & Associates on Sun, Jul 31, 2011

The estate tax, which has been a part of the U.S. revenue system since 1916, has become a complicated issue particularly for small, family-owned businesses.  The reason is because when an individual dies, what he or she leaves behind is subject to significant taxation, even if it’s primarily invested in a family business.

“The business is your savings, your legacy for your kids,” says Dan Danner of the National Federation of Independent Businesses, the nation’s leading group for small businesses, “In most cases, it’s everything you own.”

But if a family-owned business doesn’t have enough cash on hand to meet the estate tax obligation, heirs are often forced to sell the business to raise money to pay the taxes.  In some cases the business just closes its doors because it is unable to pay the estate tax.

But beyond just the rates themselves, which are always subject to change, small business owners also deal with the uncertainty of having to guess how much cash their heirs will need when the time comes. 

Last December's surprise renewal of the $5 million individual estate tax exemption was a temporary reaction.  What will happen at the end of 2012 when this exemption expires is anyone's guesss.  The rates could jump to 50% with a $1 million exemption or there might be some last-minute compromise.  The point is that no one knows, and for small, family-owned businesses this is indeed a conundrum, and it prevents may family-owned business to want to invest in the economy or to hire additional employees.

It all comes down to business owners (and individuals) wanting permanent tax reform - not this see-saw of tax theories.

For more information on this topic, visit our website to read about Strategies for Family-Owned Businesses. To learn more about how to protect your spouse, home, business and life savings, plan to attend a free educational Trust, Estate and Asset Protection Workshop. Register online or call 781-235-2815 in Wellesley or 800-964-4295 (24/7).

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Tags: estate tax, tax exemption, tax reform, small business

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