By Thomas J. Perrone, CLU, CIC
Since the exemption credit increased to a substantial amount a few years ago, the term “estate planning” took on a new meaning.
At one time estate planning was considered tax planning along with other aspects of planning of your estate, depending on whether you owned a business or not. Things like income for the family, debt payments, taxe reduction, income tax planning, and of course distribution of assets. There was always an emphasis on avoiding estate and state estate taxes.
However, as the exemption credit increased to the point that most American tax payers would be exempt, the emphasis change on how estate planning was done.
However, in 2025 the sunset provision will kick in and will redefine the estate planning landscape. The provision is set to go back to the exemption credit of about $600,000. However, most professionals feel it will be higher. Anyone’s guess.
With the possibility of lower exemption, estate planning will change. I personally feel small business owners will feel the impact more than most, as their business values will increase their potential exposure to Federal and State estate taxes.
Estate planning is an essential aspect of managing a small business. It can help ensure that your business is preserved as you want it to be, and that it can continue to operate smoothly even after you pass away. Part of estate planning for business owners will be to focus on the transition of the business more than before. If the exemption is lowered, small business owners will find themselves having to deal with a large tax at their death, upon the transfer of the business. Much can be avoided by doing planning now and using the exemptions available today.
Areas that need planning are:
- Drafting a will and basic estate plan.
- Planning for tax efficiencies.
- Sorting out issues in family-owned businesses.
- Drafting a buy-sell agreement (for multi-owner businesses).
- Purchasing life and disability insurance.
- Creating a succession plan.
- Having a discussion with affected parties.
In order to have a proper discussion about estate planning the short video below will help you understand the main concept of asset distribution. If you are a small business owner, this information may be critical to your planning structure.
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For a better understanding of Estate planning view this short video of how asset distributions work in different estates.
Note: I engage in a working relationship with professional advisors for their business cases.
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