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Nov 16, 201709:50 AMExit Stage Right

with Martha Sullivan

Waiting on Washington to make estate tax changes? You might die first

Washington is buzzing right now about proposed federal tax legislation. One of the key elements of the bill being considered proposes changes to the estate tax.

Currently, federal estate taxes apply to individuals who die with an estate worth more than $5.49 million. In 2018, barring no changes to the present law, the exclusion goes to $5.6 million. If an individual is married and his or her spouse passes away, the surviving spouse can elect portability of the deceased spouse’s unused exclusion. That is, the exclusion can roll over to them. Therefore, for a married couple, the total exclusion is $10.98 million in 2017 and will be $11.2 million in 2018. The Tax Policy Center of the Urban and Brookings Institute estimates that approximately 5,500 individuals dying in 2017 will owe estate tax.

The repeal of the estate tax has been a political topic for years. The House version of the proposed tax legislation doubles the current exemption amounts to, in 2018 dollars, $11.2 million for an individual or $22.4 million for a couple. The House bill goes even further and phases out the estate tax in its entirety over six years. The Senate version mirrors the House in that it doubles the exclusion amount; however, it does not phase it out or eliminate it. The next logical question is how likely is it that the legislation will pass? At this point that’s anyone’s guess.

So, if you’re thinking about selling your business and/or working on your estate plan, should you wait until all this settles out? As discussed in my Oct. 17 blog post for IB, placing everything on hold is not a good idea. As one of my colleagues is fond of saying, “You could die waiting for the estate tax to go away.”

If you are in the position where the current or potential estate tax thresholds apply to you and your family, you should, of course, pay attention to the situation. However, life should not revolve around tax policy. For example:

  • There are many considerations as you plan your succession and your estate.
    • What meaningful impact do you want your remaining assets to have as they are distributed to your named heirs?
    • Are your key documents in sync? There should be careful coordination between your last will and testament and an existing buy-sell or shareholder agreement. The documents should be aligned so that there is consistent interpretation and outcomes.
    • Have you thought through the consequences — both good and bad — that your plan for distributing your assets may have? Your bequeathing wishes and allocations send a message to your heirs. Be sure it is the message you want to stay with them for forever. Do you really want to send the message that taxes and their potential avoidance are more important to you than carefully planning, preparing, and communicating your wishes?
  • Markets change. If you are considering selling your business and it is market-ready, now might be the best time to sell. The market is good — right now. It may not be as good one, two, or six years from now.
  • You change. Life has a habit of giving us detours in our personal and business matters. As the lyric goes in one of my favorite Dire Straits songs, “Sometimes you’re the windshield. Sometimes you’re the bug.” Having your plans in place allows you to adjust to whatever the ride has in store for you.
  • And yes, we could die while waiting for Washington to get its act together.

We will, here at Honkamp Krueger & Co. P.C., be keeping a close eye on the legislation as it goes through its process. In the meantime, keep working on your plan and setting the table so you can “exit stage right.”

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About This Blog

Spending half her career as an advisor to privately-held and family businesses and the other half in CFO/COO roles, Martha Sullivan is a partner and the succession planning practice leader in the business transition strategies group at Honkamp, Krueger & Co., P.C. She and her team have extensive experience assisting business owners achieve their personal, business, and transition goals. “Don’t think of the 'exit' from your business like it’s a four-letter word. Make it your next adventure!”

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