A taxing affair.

The "death tax" takes its toll on minority entrepreneurs

Once considered a burden of the ultrarich, the federal estate tax has in recent times become the bane of small business owners. Also known as the death tax, it is levied against any estate worth over $650,O00--with rates that range from 37% to 55%--and is payable in cash no more than nine months after the individual's death. And often minority, family-owned operations that have taken generations to build are the hardest hit.

A study conducted by Kennesaw State University in paying estate taxes would make the growth of their businesses more difficult. In fact, 29% felt that if the principal owner of the company died, they would be forced to sell all or a portion of the business to pay off the tax.

Employing a long-range and comprehensive estate plan is one way to offset the effects of the death tax. However, this method is not inexpensive and can take years to implement.

But it is less costly than the price the Sengstacke family (owners of the pay. The company drifted into financial limbo because of $4 million in estate taxes incurred upon the publisher's death (see "Carrying the Torch," Newspoints, April 1999). In that case, only a potential deal with BE 100s CEO Don Borden stands between the paper's long history of service and oblivion. But in far too many cases, the death of a business' founder has meant the death of a family business. And that is a blow to us all.

Estate Taxes and Family Business(*)

                                         All Firms    Farm

Impact of paying estate taxes:
   Aware of their estate tax liability      55%        --
   Less willing to wait for an              36        46%
   investment to pay for itself
   Less likely to invest in higher          68         68
   risk projects
   Makes growth of business more            61         --
   difficult
   Makes survival of business more          64         --
   difficult
   If due tomorrow, percent selling         33         37
   or liquidating
     Number of jobs that would be lost      30       23(**)
   Percent hiring more people if            60         54
   estate tax eliminated
     Number of new jobs that would be        5       13(**)
     added

Characteristics of businesses:
   Year business founded                   1953       1954
   Percent in first generation              19%       21%
   Total number of employees                80         47
   Jobs created in last five years          --         --
   Annual revenue growth over last           7         --
   five years
   Annual revenue growth over next           6         --
   five years (projected)

                                              Sub-group surveys
                                          Black     Manufacturing

Impact of paying estate taxes:
   Aware of their estate tax liability     43%           65%
   Less willing to wait for an              --           --
   investment to pay for itself
   Less likely to invest in higher          --           --
   risk projects
   Makes growth of business more            90           96
   difficult
   Makes survival of business more          87           93
   difficult
   If due tomorrow, percent selling         29           31
   or liquidating
     Number of jobs that would be lost      4            18
   Percent hiring more people if            --
   estate tax eliminated
     Number of new jobs that would be       --           --
     added

Characteristics of businesses:
   Year business founded                 1984(**)     1957(**)
   Percent in first generation             100%          42%
   Total number of employees              96(**)         45
   Jobs created in last five years          10            9
   Annual revenue growth over last          --           --
   five years
   Annual revenue growth over next          --           --
   five years (projected)