If you own a family business in Maryland, Delaware, or Pennsylvania you likely take pride in the wealth your company has generated over the years and like many families who have businesses, you want keep you company in your family when you are gone. While this wish may seem simple enough, it is laden with the potential for high transfer taxes. Nevertheless, there are some ways to transfer your business assets to your succeeding generations without the Federal and State governments taking too much.

A. TAXING ISSUE

Far too many parents and grandparents have mistakenly assumed that as long as their wills specified how assets should be split among their children and grandchildren those transfers are guaranteed. It is not until after one dies that their heirs are astonished to learn exactly how much the federal and Maryland tax bill on an estate can reach.

If this happens to your heirs, the road ahead will be faced with a touch decisions. Your loved ones may either be forced to sell the business or take out a sizeable loan to keep your company afloat. The debt burden placed on them may inhibit investing in improvements needed to remain competitive and grow. These situations could bring about a drop in business value and profits that leave no other option in the end but to sell.

While there are still other estate assets (such as life insurance proceeds) your family members could use to pay future taxes or take advantage of special estate tax breaks for closely held businesses your best option is still to decrease overall financial worth of your estate. One alternative is to gift stock to individual family members, thus using your annual gift tax exclusion as well as your lifetime tax gift exemption to transfer interests now before they escalate in value further. Other options to reduce your overall estate tax is through giving away other assets during your lifetime or utilizing other tactics such as family limited partnerships, grantor retained annuity trusts and charitable trusts.

B. SOLUTION PROCESS

A realistic assessment of your future estate tax burden is the first step towards contemplating a family business transfer. The next step is to choose the strategies that allow you to pass the business on to your heirs without forcing them to acquire avoidable debt or suffering a forced sale to cover tax costs. Please contact us for help with these precarious tasks.

C. PASS THE BUSINESS OUT WHILE YOU CAN

Countless family businesses in Maryland aggregate their ownership among older members who are more likely to be subject to higher estate tax rather than younger family members. One efficient way to combat such taxes is to create new family businesses so that rather than having your children remain in the family business you could potentially split it up by having them start a corresponding or even competing company. He or she may even establish a company that leases buildings or equipment to your company. Though it is true that a child in a competing company may take away some of your business, he or she will ultimately remove transfer taxes as well.