Don’t Ignore Your Estate Planning – Part 2

  By Matthew Jentner
Matthew Jentner

Earlier this week, I relayed a rather bizarre tax court case where a piece of art is valued by family heirs at one price and by the IRS at another price, resulting is a $29 million discrepancy in the federal estate tax owed. (You can find that post here.) So what is the practical application for you?

Many of you own a family business, work for a family-owned business or own real-estate holdings, including family-owned farms. These types of holdings do not have a “daily market price” like stocks and bonds do. There can be a large difference of opinion on what the value is. The higher the IRS values illiquid holdings, the more taxes they can levy against the estate. The lower a family can successfully value these holdings, the lower the potential estate tax. But, as the saying goes, beauty is in the eyes of the beholder.

About five years ago, the federal estate tax was levied on assets in estates above the $1 million-threshold at a rate of 55%. This was very onerous on family businesses and farms and caused many businesses to be sold or liquidated to come up with the money to pay the taxes. Businesses were closed, employees lost their jobs, and families lost their inheritances.

Over the past several years, this tax-exempt threshold was increased to $5 million, and the tax rate was lowered to 35%. This brought welcome relief to many families, businesses, employees and customers. However, this estate-tax relief was only temporary. The tax rate has already been increased to 40%, and President Obama’s latest budget calls for reducing the estate-tax exemption to $3.5-million and further increasing the estate tax rate to 45%.

If you own a family-owned business or farm or if you own real-estate properties, you owe it to yourself, your employees and your customers to meet with your estate-planning team to determine the potential impact of estate taxes. Through proper planning, there are ways to help reduce or even potentially eliminate some of these taxes.

For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.