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2013 estate tax changes could impact succession planning for family businesses

As our regular readers know, big changes are presumably in store for estate tax law for 2013. While each taxpayer currently has a $5.12 million lifetime federal estate/gift tax exemption, that number could drastically decrease if Congress doesn't take action by the end of the year. Those who die between now and the end of the year with an estate worth less than $5.12 million will owe no federal estate taxes. Estates exceeding this amount will be taxed at a top rate of 35 percent. At this point, the default for next year will be a lifetime estate/gift tax exemption of $1 million and a top tax rate of 55 percent.

For farmers and those who own businesses, estate planning in the present is a somewhat uncertain business when it comes to tax savings, but very important. One of the main goals of succession planning is to arrange matters within a company to allow for a smooth succession, and in a tax efficient manner. For family businesses or farms, the fair market value owned by the deceased person in includible in their gross estate at the date of death, though certain farms operated as family farms may be able to reduce the amount.

For parents who want to give over their entire share of a family business to children, it is best to do it before the year's end. There are other considerations to take into account, though, such as how the business assets would be divided between children, who will take on managerial roles, and whether one is ready to give up control of the business. In many cases, it is best to transfer ownership in a business over a number of years.

As always, working with an experienced attorney is important, not only to ensure that one understands the applicable law, but so that one's unique estate planning goals are met and that this is done in the most efficient manner possible.

Source: USA Today, "Farmers, beware: Estate taxes could rise sharply," Larry Copeland, July 9, 2012

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