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Don't Waste a Good Recession: Finding Estate Planning Opportunities Amidst the Current Economic Downturn


By Gregory Greenleaf

If you are a family business owner hoping to pass ownership of your business and other assets to your children, these recessionary times can provide unprecedented estate planning opportunities. The key to taking advantage of these opportunities is a combination of good communication among family members and well-thought-out estate planning with trusted advisors.

In the United States, changes in the 2009 federal estate, gift and generation-skipping tax systems, along with historically low interest rates, provide family business owners greater opportunity to minimize future estate taxes. The federal estate tax exemption has been increased from $2 million to $3.5 million per individual. Married couples’ exemptions can be combined to ensure that $7 million passes free of federal estate tax upon the death of the surviving spouse.

In addition, the annual gift tax exclusion (the amount an individual can give to each recipient without utilizing the $1 million lifetime gift tax exemption) has increased from $12,000 to $13,000. Taking advantage of this exclusion by gifting depreciated assets is a great way to benefit from the current economic recession.

Most enterprising families will find that the values of their businesses and other assets have declined significantly over the past year. As disheartening as this can be, it does favor long-term estate planning. For example, if your family business stock was worth $100 per share in 2008 and is now worth $75 per share, more shares can be transferred to your heirs now, while the stock value is lower. By increasing the number of shares you transfer to your heirs now, you can lower the taxes your estate may have to pay upon your death.

Strategies such as promissory notes, intra-family loans, installment sales of assets, grantor retained annuity trusts (GRATs) and charitable lead annuity trusts (CLATs) are all tied to the interest rates set by the federal government. With today’s historically low interest rates, these estate-planning techniques can be especially effective, making this an excellent time to discuss with your financial advisors how they might work in your case. Implementing a smart estate planning strategy can increase the odds that your heirs will not be forced to sell the family enterprise in order to pay federal or state inheritance taxes.

While this combination of advantageous changes to government estate rules and a weaker economy may make now a unique opportunity for beneficial planning for your heirs, do not overlook your own needs in this process. Before implementing any changes in the ownership of a business, real estate or other assets, be sure your own financial future is secure. Passing ownership to your heirs often means passing control and cash flow. The remaining assets must provide sufficient income for you and your spouse.

Even with all the aforementioned motivators to revisit your estate plan, it is important for business-owning families to have a vision of what they want to put in place and a road map for how they are going to get there. Before moving ownership of a business to children, well-meaning parents also need to answer some tough questions like these:

Are my children really interested in the family business? Do my children understand what it means to be a good steward of the company? Can children who choose not to work in the family business be good stewards as well? Should I transfer ownership to just those children who work in the business? How do I treat my children fairly? Do we have the appropriate governance and best practices in place so that the family enterprise serves as a unifying factor in the family, instead of fracturing the family as members fight over money and control?

The answers to these tough questions require honest dialogue among business-owning family members. These conversations can be difficult, and consequently many families avoid this important part of estate planning. For most families, an independent facilitator can be invaluable as they explore these difficult questions.

Once a family road map is established, you can proceed with your estate planning attorney, financial planner and other trusted professional advisors for guidance on the specific estate planning techniques best suited to achieve your vision.

While no one relishes poor economic times, a family with a strong vision for the future of both its family and its business can take advantage of these times to ensure the perpetuation of the family enterprise for generations to come.




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