The lowdown on estate taxes.The year 2004: It is the best of times; it is the worst of times.... And so it is for owners of closely held A phrase used to describe the ownership, management, and operation of a corporation by a small group of people. In a closely held corporation, the same people often act as shareholders, directors, and officers, and no outside investors exist. businesses who are contemplating their own mortality--and the mortality of their family businesses. It is the best of times: For heirs of people who die between now and Jan. 1, 2010, more can be transferred free of estate tax, and the top estate tax bracket Tax Bracket The rate at which an individual is taxed due to a particular income level. Notes: Each income class is taxed at a different level. Generally, the more you make the more you are taxed. will be reduced. For people who die during January 2010, there will be no estate tax at all. In fact, the amount that can be passed tax-free was increased so much that a special deduction for family business owners was repealed as of Jan. 1, 2004. As the threat of estate taxes is reduced or eliminated, business owners can concentrate on what makes the most sense for their families and their businesses rather than concentrating on what reduces Uncle Sam's share the most. It is the worst of times: The complexity, unpredictability and arbitrariness of the federal estate tax law has increased exponentially ex·po·nen·tial adj. 1. Of or relating to an exponent. 2. Mathematics a. Containing, involving, or expressed as an exponent. b. . The present law concerning transfers at death provides that the rules will be different every year from now until 2011, as the advantages peak for heirs of taxpayers who die in 2009 or 2010 (depending upon their assets and their basis in their assets), and steeply decline for taxpayers who die in 2011 or thereafter. The uncertainty in the tax code means that business owners need to plan for even more contingencies than usual. Thus, business owners must plan as if there still will be an estate tax at their death and therefore should consider all of the options traditionally considered in an estate tax regime, including: * Family limited partnerships. * Special valuation rules. * Qualified family business exclusion (which would come back in 2011). * Section 6166 deferral deferral - Waiting for quiet on the Ethernet. of estate tax with respect to certain closely held businesses. * Marital trusts Marital trust A trust created to allow one spouse to transfer, during life or upon death, an unlimited amount of property to his/her spouse without incurring gift or estate tax. or marital Pertaining to the relationship of Husband and Wife; having to do with marriage. Marital agreements are contracts that are entered into by individuals who are about to be married, are already married, or are in the process of ending a marriage. distributions. * Life insurance trusts to pay the estate taxes. * Planned charitable giving options. Business owners must also plan for the possibility that there will be no estate tax at their death and therefore should consider new techniques: * Special kinds of trusts that will qualify for additional increase in basis. * How to hold the assets in case the estate tax is reinstated before the surviving spouse dies. * Different kinds of planned charitable giving options. RELATED ARTICLE: Consider non-tax issues, too Business owners must consider non-tax issues that may have been neglected when the emphasis was on saving estate taxes. Ask yourself these three questions: 1. Should the business really be given away to the children while the business owner is alive? 2. Do any of the children have the energy, the drive, the ambition and the desire to work in the business? Should the business owner sell the business to a third party while the business is still strong? How important is it to the children that the business continue? 3. How does the parent treat the children who are not in the business? If one child is in the business, and another child owns the assets (for example, the uninvolved un·in·volved adj. Feeling or showing no interest or involvement; unconcerned: an uninvolved bystander. Adj. 1. child is the landlord), this could be a disaster for the one trying to run the business. If all the assets are tied up in the business controlled by the managing child, the other child is at the mercy of the managing child for many years after the parents' deaths. Should the one working hard at the business be stuck with the business? If the uninvolved child receives all stocks and bonds, and the involved child only inherits the business, what happens to the involved child if market forces beyond his control cause the business to tank? Each of these situations can be a potential land mine, which may irrevocably ir·rev·o·ca·ble adj. Impossible to retract or revoke: an irrevocable decision. ir·rev split the family. Marguerite Marguerite, for French women thus named, use Margaret Marguerite. For French women thus named, use Margaret. marguerite, in botany marguerite: see daisy. Munson Lentz and Regis Carozza are partners at Honigman Miller Schwartz and Cohn Honigman Miller Schwartz and Cohn LLP (Honigman) is a law firm in Michigan. Offices are located in Detroit, Lansing, Ann Arbor, and Oakland County, Michigan. Honors Honigman is ranked the number one Michigan Law Firm by LLP LLP - Lower Layer Protocol in Detroit, a member of the Detroit Regional Chamber. [ILLUSTRATION OMITTED] [ILLUSTRATION OMITTED] |
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