Death Tax

Kills Family-owned Businesses

The death tax, otherwise known as the estate tax, is all about wringing the last drop of blood-tax from family businesses when the owner dies – that is, those families that still have a business after the gutting of the US economy by the Washington politicians (Democrats and Republicans alike) and the special interest groups!

Some basic facts about family businesses:

It is estimated that family-owned businesses contribute more than 60% to the GDP (Gross Domestic Product)!

Most new jobs in the US are created by family businesses.

Family businesses create most of the wealth in America.

Yet only about 30% if family businesses successfully transition to the second generation of ownership; 12% successfully transition to the third generation and only about 3% make it to the fourth generation.

"One of the major problems that contribute to why family businesses fail to survive to the next generation of family ownership – estate taxes. The death tax." says leading family business expert Don Schwerzler.

Can family businesses do a better job of tax planning to help mitigate the damages done by the death tax? Absolutely! We urge every family business to do a better job of estate tax planning. Working with the tax advisors of our family business clients is part of the succession management services provided by the Atlanta-based Family Business Institute

The American Family Business Foundation (AFDF) is not related to the Family Business Institute. It is an organization of family business owners and farmers. Recently they released two studies that help to illuminate the consequences of the death tax.

Released today at a Capitol Hill policy briefing, the first of the two studies found that the estate tax, because it discourages the expansion of small businesses and causes a drag on the economy, generates virtually no net government revenue and, in fact, appears to produce a “net revenue decrease.” The second study found that the overall economic impact of the tax “is negative, statistically significant, and far stronger than the impact of … income taxes.” Both studies showed that small business owners expand their companies more slowly and add fewer employees when estate tax rates increase – and increase investment and add more employees when rates drop.

According to Dick Patten, AFBF President:.

“The story they tell is simple: Eliminating the estate tax would cost the federal government virtually nothing, but would produce as many as one-and-a-half-million new jobs.” Compare that, Patten said, to the stimulus package approved earlier this year, which will cost $787 billion to generate or ‘save’ an estimated 3 million to 4 million jobs.

“On the one hand we have 1.5 million jobs at zero cost; on the other hand we have 3 to 4 million jobs at a cost of $787 billion. You do the math.

“Put another way, a low estate tax rate provides an incentive to grow the family business,” said Patten. “A high estate tax rate provides the opposite.”

American Family Business Foundation

An even playing field? The U.S. death tax (estate tax rate) is one of the highest in the world. Countries that do not have a death tax include China, India, Russia, Australia, Canada, Mexico, and Sweden.

Some argue that the death tax is another form of “class warfare” that has been going on since the Johnson Administration. The latest attack – a proposal to limit discounts on minority shares, has been made by Democrat Earl Pomeroy from North Dakota.

We asked our Family Business Valuation Expert, Brad Davidson, to comment:

"The valuation discount has long been a thorn in the side of the IRS and revenue-seeking politicians. Congressman Pomeroy's bill is just the latest in a long line of proposals that seek to eliminate valuation discounts for shares in family businesses and especially family limited partnerships.

"Valuation discounts are real: buyers are not willing to pay as much to own a minority interest in a private business as they are to own shares in a public company with equivalent characteristics. But business owners and their advisors should make sure stock transfers and gifts are accompanied by a current valuation prepared by an experienced, credentialed appraiser. A good valuation doesn't cost much but it can save a lot of time, money and heartache down the road."

Brad Davidson, CEO, SPARDATA

From an IBD editorial:

"By and large, the death tax is borne by people who own small businesses, who haven't had the benefit of big corporate lawyers and big corporate accounting offices to prepare them for paying this tax," says William Beach, a senior fellow in economics at the Heritage Foundation.

Clearly, if you are family business, you should be contacting your Senators and Representatives in Washington DC – let them know how you, a family business owner or a member of a family in business together, think about the death tax!

But don't expect help from our elected officals - contact your business valuation expert, your CPA and/or your tax attorney to make sure you have an estate tax strategy that will protect your money and your family's business from the IRS!


The Death tax Is Unfair and In Conflict With the American Dream

•The estate tax, also known as the death tax, is a 40 percent tax on an individual’s transfer of assets in excess of an exemption amount to the next generation at the time of his or her death.

•In many cases, this “estate” is a small business or family farm, and a death tax bill can make a family’s loss even more devastating.

•America was built on small, family-owned businesses. Families have worked hard for years to pass on opportunity to their children—and our tax code shouldn't punish them.

The Death Tax Hurts Family Businesses Especially Ranch and Farm Operations

•Death should not be a taxable event.

•Though it represents just a tiny fraction of federal revenue, the impact on a family can be enormous.

•The death tax can force a family to sell off parts of a business or farm, lay off workers, or shutter a business entirely.

•Assets that can trigger the death tax include land, property, and equipment. And a death-tax liability is often greater than a family business’s liquid assets.

•In fact, the death tax is one of the biggest reasons that family businesses have to close up shop.

The Death Tax Hurts Rather Than Grows the Economy

•Not only can the direct cost of the death tax be devastating, the cost and stress of planning for it can be high as well.

•This is time and money better spent focusing on growing businesses, investing, and helping the economy.

•The estate tax is also double taxation, further penalizing people for saving and investing in our country.

This Legislation Will Provide Families the Relief They Need. It Would:

•Repeal the estate tax and the generation skipping transfer (GST) tax for all future transfers;

•Retain the gift tax and lower the top rate from 40 percent to 35 percent; and

•Retain full step-up in basis for transfers at death.


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