Recently, I have written several blogs concerning the possible federal estate tax increase from zero to 55% in 2011. If Congress's left and right representatives cannot come to an agreement, the exemption will end at $1 million. This means that for every individual who passes away, up to $1 million in assets may pass to their heirs free from estate taxes. While having one million dollars is a significant amount of money, $1 million in assets is something considerably different. Numerous small and family owned businesses that fall into the class above the $1 million limit would be hit hard by the estate tax.
Over the past few years many businesses have been split up and sold to pay the estate taxes. Much of this could have been avoided with proper estate planning. If nothing changes many businesses that are family-owned will most likely have to sell off the business because of a 55% federal estate tax rate. Many states have additional estate taxes that will be due which could raise the total tax to around 70%. Luckily Florida residents will not be subject to additional state estate taxes. For instance, suppose a family owned business has a net worth of $10 million. When the current owner dies the $10 million net worth of the company will pass to the estate and be taxed at 55% + any state estate taxes that may be due. This means that the heirs will have to pay the millions of dollars out of their own pocket or sell off the company. The same rationale is true for farm and ranch owners as well. A one thousand acre farm that has been in a family for many years could be worth millions of dollars. When the current owner dies, the farm will be subject to the same 55% estate tax requiring the heirs to sell off the property to pay the taxes.
With serious tax consequences on the horizon, estate planning has never been more important. The showdown between Republicans and Democrats on Capitol Hill on estate taxation does not show strong signs of reconciliation. If you are a small business owner or farm owner who would like more information on protecting your company contact a Florida Estate Planning Lawyer today. An attorney can help you reach your goal of keeping the business in the family and reducing the taxes through estate planning techniques.