Congress has given many business owners an incredible tax bonus by increasing the lifetime gift tax exemption amount to more than $5 million, but only until the end of this year. Barring additional legislative action, that exemption will expire and be reduced to only $1 million. This gift tax exemption level provides many business owners an unprecedented opportunity to pass on the family business free of exposure to wealth transfer taxes.
Those who fail to take advantage of this opportunity risk the future of their business.
Business owners that do not maximize their ability to transfer part of their assets tax efficiently will suffer a significant amount of tax exposure when the exemption is reduced back to $1 million and the tax rate increases from 35 percent to 55 percent. A little effort and planning now will go a long way to benefiting heirs and ensuring the viability of the business.
To gift a business, however, requires appraisals, legal work, accounting, and possibly other services. These services take time to properly administer. Business owners who wait past this summer to begin the transition process risk not having enough time to complete their transaction.
Milwaukee is a large metro area but there are only a finite number of appraisers, accountants, and lawyers who can properly advise clients on substantial asset transfers such as a business, and those advisors will be increasingly busy as the year passes.
It is estimated that approximately 75 percent of small business owners wish to eventually pass their family business onto the next generation of relatives. Of those, only about 20 percent will be successful. A failure to plan appropriately is among the leading causes. Most business owners focus on the day-to-day wellbeing of the business and simply fail to map out a succession plan. By the time they get around to that planning, it is often too late.
The advice here is simple: Don’t wait to see what Congress decides to do at the end of 2012. Now is the time to contact qualified advisors and begin the process to transition ownership of the business. That does not mean an owner has to retire from the business altogether, but simply transfer ownership of the business.
In some cases, acting now will save thousands, if not millions of tax dollars. In yet other cases, acting now could save the business itself because failed planning or tax exposure could otherwise result in the forced sale or closure of the business. Time is short.
Eido Walny is an estate and asset protection attorney and the owner of Fox Point-based Walny Legal Group.