Handing down a family business

Photo: krosseel/morguefile.com

Q. My parents have a small business that they plan to leave to me. They think it’s enough to put it in their will. I think it might be more complicated. Is it?
— Name

A. You’re right that leaving a small business to the next generation is more complicated than just indicating your wishes in a will.

Using a will can result in the imposition of an estate tax amount that could have been substantially reduced or eliminated with careful planning, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

The federal estate tax exemption in 2016 is $5.45 million per person, and the New Jersey exemption amount is only $675,000 per person. So there’s a good possibility that estate taxes could be levied when your parents are gone.

So your parents should go beyond their wills.

“Succession planning for small family owned business often involves transfers of shares of the business during the owners’ lifetime in ways that takes into account transfer tax consequences,” Whitenack said. “Such transfers can be structured to insure that the owners retain control during their lifetime.”

Your parents should consult with an estate planning attorney with experience in succession planning to determine the most effective way to transfer the business without incurring unnecessary transfer tax.

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This post was first published in June 2016.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.