When you pass away and you transfer property and money to your heirs, there is a possibility that estate taxes will be due. Estate taxes can result in a substantial tax bill that must be paid. Unfortunately, if you have a family business, this can be a major problem.
It is imperative you ensure that you create a solid succession plan for your company so that business operations can continue even after you are gone. A part of your plan for the future of your enterprise should involve making sure that estate taxes do not affect the ability of your family to continue operations. Many businesses and many family farms have ended up being lost as a result of a large estate tax bill and you never want this to happen to you.
There are different approaches that you can take to try to avoid estate taxes so you can protect your family business. It is imperative you speak with a qualified legal professional who can advise you of what you can do to reduce the chances that estate taxes will become a problem for continued business operations. Zimmer Law Firm has helped many clients throughout the state of Ohio with estate tax avoidance planning and with planning for business succession. Our Montgomery estate planning lawyers can bring our extensive legal experience to you to help with your situation.
How Estate Taxes Could Hurt Your Family Business
Estate taxes are assessed on larger estates. According to the Internal Revenue Service, estates valued at $5,450,000 or more in 2016 will be subject to the federal estate tax. While this may seem like a lot of money, the problem is that your business assets could be considered a part of your estate. A business, with all of its equipment and other valuable property, could easily be valued at more than this amount and could thus push your estate into the range where taxes will be assessed.
The top statutory rate for estate taxes is 40 percent, which means that an estate tax bill of equal to close to half of the value of assets could result when your property passes. In many situations, this creates an impossible situation for those who stand to inherit. The problem is, when you own a family business or a family farm, a lot of your wealth is often tied up in the business or in land. In other words, there is not liquid cash available to pay a huge estate tax bill to the Internal Revenue Service.
The bill has to be paid, though, so those who inherit are left in a situation where they may have to take a large loan to cover the taxes- and hope it can be paid back- or where they must sell the family business or the family farm land in order to get enough money to pay the estate tax bill. Your business that you have worked so hard to build up could thus end up being sold, could face problems with profitability because of the need to pay back the loan, or could be diminished if a part of the company is sold off to generate funds for tax payment.
You do not want to see your family business end up being sold or destroyed as a result of a need to pay taxes to the IRS. Instead, you need to work with an estate planning lawyer to create a comprehensive plan to avoid or minimize estate taxes so your heirs are able to inherit the business without loss. There are a variety of different legal tools to consider, including structuring your business so it is a separate legal entity and transferring stock (Under Internal Revenue Code section 303, it is possible for the estate to redeem stock at a lesser tax cost). You can also consider using trusts to try to facilitate the transfer of assets outside of probate so you can try to avoid hitting the threshold value that will trigger taxation.
How an Estate Planning Lawyer Can Help You to Avoid Estate Taxes
The Montgomery estate planning lawyers at Zimmer Law Firm have extensive experience assisting clients in the estate planning process and we know all of the legal tools available which can help business owners to avoid estate taxes. We will work hard to help you create a plan to protect your business interests and to ensure that you can transfer your company on to the next generation so it can continue to grow and thrive after you are gone. Give us a call at 513.721.1513 today to learn more.
- Creating a Trust: What to Consider - March 23, 2023
- What You Need to Know about Planning for Elder Care - March 21, 2023
- Can a Trust Be Contested? - March 16, 2023