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Small-business owners worry about possible estate tax change

Building and maintaining a family business — whether large or small — can take time, money and effort, as many in Texas know. That is why it is important for many to consider how to save the family business when they begin estate planning. One of the considerations for many as they plan is any potential estate tax and how it will affect their heirs.

Under current law, the estate tax exempts assets up to the value of $5 million. After that the tax applies, and assets are taxed at the maximum rate of 35 percent. However, that tax exemption is set to decrease to $1 million at the end of 2012. This lowering is of concern to many in estate planning because it may lead to family businesses being forced to pay the estate tax.

The last time that the estate taxable value was set at the $1 million mark was in 2000, and the tax rate on estates larger than the exemption was 55 percent. This created a reduction in capital formation in the amount of $847 billion. Some worry that this will take away from the money that could be invested in the economy.

Of concern to those who are estate planning is the need for a family business to use what cash it has to reinvest and grow the company. This need limits the amount of cash that is available to pay the estate tax. Proper estate planning may alleviate some of the hardship on a family business, but those who own family businesses may want to keep an eye on any changes to estate tax laws.

Source: Fox Business, “Family Businesses May Not Survive ‘Death Tax’,” Kate Rogers, May 31, 2012