We realize that many people want to pass their business down to the next generation, and hope to do so with a high degree of success.
We also know that this is easier said than done, for a variety of reasons.
Before we go any further, here’s a passage from our website that you should keep in mind:
“Family business owners, farmers, ranchers and landowners face unique challenges surrounding how to preserve the family business or farm—a symbol of their heritage. Sadly, over 70 percent of all family businesses don’t survive the transition to the next generation. Estate taxes play a significant role in that problem.”
As you can see, many people run into issues in regards to passing on their family business. There are many reasons for this, including the fact that estate taxes can get in the way.
Are Things Getting Worse?
As if it’s not already difficult enough to plan for the next generation, many family owned farms are beginning to wonder what the IRS has in store.
According to a recent article published by the Wisconsin State Farmer, citing the American Farm Bureau Federation, the IRS is looking to change the way business assets are valued in regards to estate taxes when they’re part of a corporation, LLC, or family owned partnership.
While many people hope that the IRS would make life easier on those who are attempting to pass their family farm to the next generation, this doesn’t appear to be the case.
The article goes on to add the following:
“These proposed rules will make it much more difficult for families to pass businesses on to the next generation of owners. Farmers and ranchers who operate in a family-owned partnership, LLC or corporation would lose a valuable estate planning tool that could result in increased estate taxes.”
As we noted above, estate taxes often play a big role in the failure of a business that is transitioning from one generation to another.
Right now, the value of any inherited family business assets can be discounted as the result of:
- Minority discount. In short, asset values can be reduced if beneficiaries “don’t have control over their share of the business.” For example, a person who inherits less than 50 percent of a farm would not be permitted to solely make business related decisions.
- Lack of marketability. Current rules also allow the value of assets to be reduced if beneficiaries are unable to sell their share of the company.
Even if you don’t know anything about estate tax, you probably realize that how assets are valued has a major impact on the amount of money that is owed. Another important excerpt from the article notes the following:
“IRS proposed regulations under Section 2704 eliminate or greatly reduce the discounts for lack of control and lack of marketability for “family related entities” and will discourage families from continuing to operate and build their family businesses and pass them on to future generations.”
The Farm Bureau is fighting back against these proposed changes, and hoping that others will do the same by visiting this page and providing a support letter in opposition of the changes.
For many people, there is no better feeling than passing down a farm to the next generation. Unfortunately, the IRS does not always look at the big picture, meaning that the organization could make some changes that make it more difficult for this transition to occur.
If you have questions about family owned businesses and farms, especially those that pertain to estate planning, don’t hesitate to contact our law firm to setup a consultation.
We know the ins and outs of the estate tax system, including the steps you can take to preserve your assets for the next generation.
Even if the IRS moves forward with these proposed changes, there are things you can do to help your family avoid trouble in the future.
You should be proud of your family farm. You should also be able to transition it to the next generation without a hassle. Let us show you how this is possible.