What Could Proposed Estate Tax Bill Mean to You?

U.S. Sen. Bernie Sanders has released proposed legislation named “For the 99.5%” Act. If passed in its present form, the legislation would bring estate tax exemptions back to the 2009 thresholds of $3.5 million per individual and $7 million per married couple. Exemptions are currently $11.7 million and $23.4 million, as reported by Think Advisor in a recent article “Sen. Bernie Sanders Introduces Estate Tax Bill.”

Larger estates would also be subject to higher tax rates. The current 40% tax rate would be raised to 45% and taxable estates larger than $10 million would be taxed at 50%, amounts greater than $50 million at 55% and any estates valued at greater than $1 billion would be taxed at 65%.

The same rates would apply for all gift taxes, for which the threshold would be lowered to $1 million.

Sanders spoke at a Senate Budget Hearing committee, stating that his bill was designed to have the families of the “millionaire class not only not get a tax break but start paying their fair share of taxes.”

Another bill introduced by Sanders would prevent corporations from shifting profits offshore to avoid paying U.S. taxes and restoring the top corporate rate to 35%, where it has been since 2016.

In contrast, Senators John Thune, South Dakota (R) and John Kennedy, Louisiana (R), introduced legislation in early March to repeal the estate tax entirely.

Frank Clemente, executive director for Americans for Tax Fairness, said the tax plan released by President Biden during his campaign also tracked the 2009 estate tax levels that are the basis of Sanders’ bill, but because of the higher tax brackets for larger estates, his group believes the Sanders bill would raise about twice as much revenue as the Biden plan.

History teaches us that there is a long distance between the time that a bill is introduced, and many changes are made as proposed legislation makes its way through the law-making process. In this case, it can be safely said that there will be changes to the tax and estate laws, and that may be the only sure thing.

Now is a good time to review your estate plan, if these federal estate changes will have an impact on your family’s wealth. Familiarity with your current estate plan and staying in touch with your estate planning attorney, who will also be watching what Congress does in the coming months, will allow you to be prepared for changes to the tax planning aspect of your estate plan in the near or distant future.

Reference: Think Advisor (March 25, 2021) “Sen. Bernie Sanders Introduces Estate Tax Bill”

Why Estate Planning is Essential for Small Business Owners

For the entrepreneurial-minded person, nothing beats the excitement of having a vision for a business, and then making that dream come true. However, have you ever wondered what will happen to that business after you are gone?

A comprehensive estate plan, says Bakersfield.com, in the recent article “Estate planning tips for small business owners,” provides a plan that can protect your life’s work.

It makes sense. You’ve likely spent decades building your business throughout your working life. You’re proud of what you have accomplished, and you should be. You should then protect it with a well-thought-out plan. Your estate planning attorney will be able to help you design a two-pronged plan for your business and your personal life. For business owners, these two are intertwined.

Can you avoid taxes? Reviewing your personal and business assets, as part of an estate plan, is the best way to minimize the tax exposure of your estate and facilitate an organized sale or succession plan for your business. You can’t completely avoid taxes, but good planning will help them from being excessive.

There are a number of IRS sections that can help, and your estate planning attorney will know them. For example, Section 6166 gives your loved ones more time to pay the tax, by paying in ten annual installments. Another Section, 303, lets your family redeem stock with few tax penalties. Talk with your attorney and CPA to find out if your business is eligible for either of these strategies. Create a plan and talk about it in detail with survivors to help them navigate the transition.

Do you have a buy-sell agreement in place? This is critical, if more than one person owns the business. The buy-sell agreement dictates how the partnership or LLC is distributed upon the death or incapacity of one of the owners. Without one, family members may be stuck owning a company they don’t want or don’t know anything about. Alternatively, your former partners may find themselves partnered with people with whom they never intended to go into business.

The buy-sell agreement creates a plan so, when an owner passes, the shares of the company must be bought out by the other owners at a fair market price. The agreement can even establish a sale price, so family members will know exactly what they can expect to receive from the sale. In addition, a buy-sell agreement can be used to block certain individuals from taking a role in the business. For many family businesses, that’s enough of a reason to make sure to have a buy-sell agreement.

How are life insurance policies used by small business owners? Maybe you want the business to die with you. Some small businesses provide a stable income for the owner, but there’s no plan for the business to be passed to another family member or to survive the passing of the owner. If that is your situation, and you want your family to have income, you’ll need a life insurance policy.

A life insurance policy can also be used to help partners with the capital they’ll need to purchase your shares, if that is how your buy-sell agreement has been set up.

As a small business owner and a family breadwinner, you want to be sure your family and your business are prepared for your passing. Talk with your estate planning attorney to make sure both are protected, in the event of your passing.

Reference: Bakersfield.com (July 15, 2019) “Estate planning tips for small business owners”