Forty years ago Milt Stevenson Sr. founded Anoplate Corporation, Syracuse, NY, to offer plating to a small, locally based machine shop industry. Similarly, Earl Leonhardt purchased his shop in 1950 to provide plating for Cincinnati’s growing machine tool industry. As with most family owned and operated businesses, the children (and often wives and other family members) helped with the business. Eventually the father and/or parents passed the business on to their children.
Little did Messrs. Stevenson and Leonhardt realize that their inheritors could be penalized for carrying on a family business! Currently, taxes on estates worth more than $675,000 (or $1.35 million for a husband and wife) are as high as 60%. However, the November elections may change all that.
For most, the basic foundation of an estate plan is a living trust, which is revocable. With this trust, assets such as the home, automobiles and business are transferred into a trust where the owner is the principal trustee. Often, according to Timothy Middelton in his Industry Week column at www.industryweek.com, "these trusts have less to do with taxes than with avoiding probate." Also, they are time consuming and all records (including business records) are made public.
A standard tax-oriented trust or unified credit trust refers to the amount excluded from the estate taxes for any individual. This is put in a separate trust and the balance goes to the surviving spouse. Spouses are not taxed on this.
Some common irrevocable trusts have links to charities. An estate can avoid taxes by leaving the business to charity, which can then sell it without paying capital gains. The charity then buys an annuity for the donor to provide income for his/her lifetime.
Some businesses, such as Leonhardt Plating, have already worked out a plan whereby the current owners Dan and Kerry (Earl's sons) are selling the business to Dan's three sons, Joe, Scott and Kevin. The sons will own and operate the business within the next five years.
But, depending on the results of the elections, there is a chance that estate taxes may be reformed; therefore, Douglas A. Rothermich, an estate planning consultant for TIAA-CREF Trust Co., St. Louis, recommends holding off on trust planning until Washington has acted.