Estate planning is often done with the intention of leaving money to heirs or turning over ownership of a family business so that it can continue to operate into the next generation. However, for some in Nevada and across the nation, estate administration faces difficult issues in the coming months. This is because the federal estate tax exemptions currently in place are set to change at the end of this year.
Under current laws for those in Nevada and across the country, estates that have a value of $5 million or less are exempt from federal estate tax. This amount is likely high enough to include many small family businesses. But as it currently stands, the estate tax exemption will be reduced to just $1 million at the end of 2012. This lower amount may cause many more estates to face taxes that were not planned for when estate administration and planning was originally contemplated.
Some who own small or family businesses are concerned about the scheduled reduction in the federal estate tax exemption. This is because the estate tax could force some businesses to suffer financial hardship or even close due to inadequate funding to pay the tax obligations. Because many small businesses have lower liquid cash due to the need to reinvest in the company to help it grow and purchase new equipment, some may not be able to pay the large estate tax bill.
It has been reported that the last time the estate tax value was at the lower $1 million mark, the tax resulted in reduced capital formation of about $847 billion, meaning there was significantly less available funding for small business investment. This loss could be of concern to not only small business owners facing estate administration issues, but to national economy as well.
Source: Fox Small Business Center, “Family Businesses May Not Survive ‘Death Tax’,” Kate Rogers, May 31, 2012