Family Owned Businesses & Farms
Family-owned businesses, farmers, ranchers and cabin owners face unique challenges surrounding how to preserve that part of the family legacy—a symbol of their heritage. Sadly, over 70 percent of all family businesses don’t survive the transition to the next generation. Estate taxes often play a significant role in that problem.
However, estate taxes aren’t the only costs chewing up assets passed from one generation to the next. Probate fees and other settlement expenses can significantly reduce an owner’s legacy. On top of that are the problems surrounding the fair distribution of those assets to heirs.
Cabin Property is fraught with potential legal issues. Maintaining the property, paying expenses, timing of the right to use the property, and succession of the cabin are key issues in family disputes over cabin property. Simply giving a deed of the cabin to your heirs does not address these issues and leaves the property vulnerable to your heirs’ current or future creditors, ex-spouses, bankruptcies, and loss to Medical Assistance (if your heir has an accident or serious illness and becomes dependent on government assistance).
Revocable Living Trusts or Irrevocable Cabin Trusts with provisions addressing important cabin issues can be vital to preserving family harmony and may allow your family and future generations to enjoy the property.
Family-owned businesses also have similar issues to family farms. As with the family farm, the estate tax value of a family business is based on the current market value of the business as a going concern and/or the business assets, whichever is greater. The bulk of the family’s wealth may be tied up in the business, leaving the family unable to pay estate taxes when necessary.
Failure to conduct proper estate planning can lead to the business taking on additional debts to pay estate taxes, an unintended sale of the business under time pressure for a lower value, or worse. Tax planning, planning for business succession (ensuring continuity of operation and/or a faster sale process for a potentially higher value), and the use of life insurance can help to maintain the business and/or increase the possibility of a sale of the business for maximum value.
Land Rich, Cash Poor
The typical farm family is land rich, cash poor. With hundreds of thousands, if not millions, of dollars locked up in equipment, livestock, structures and land, the net worth may be impressive. But when you look at the cash flow, it’s another story entirely.
Estate taxes will be based on the current market value of all your assets. If your heirs can’t readily come up with the cash from other sources, they may have no recourse but to sell the farm just to pay estate taxes and other settlement costs.
Estate Planning Solutions
Your farm, cabin or business poses two estate planning challenges:
How can you preserve it so that you can pass it on intact to the next generation
How will you equitably distribute it among your heirs.
Achieving these two goals means planning in advance for such expenses as estate taxes, as well as implementing strategies that give you maximum control over how, when, and to whom ownership of your cabin, business, and/or farm transfers. Contact our office for more information about your options.