Estate Tax Planning in a Family-Owned Business – Where There’s a Will, There’s a Way

Posting by Jacqueline M. Thompson, CPA

No one likes to think about death.  Except perhaps for the family-owned funeral home, but they have a very good reason for this.  Contemplating our mortality is unpleasant, and is made more complicated when our passing involves both personal assets and a family business.  You and your employees work very hard to make your family-owned business profitable; it would be a shame to lose much of this to taxes when the owner passes.  This doesn’t have to happen; proper estate tax planning can help your family-owned business to avoid many to most of the ensuing death taxes.

Although the family members involved in the business should work together to assist with succession and estate planning, this is the time to utilize the services of outside consultants – specifically estate planning lawyers and/or financial planning specialists.  When we work on estate planning with our clients, one of our first steps is to ensure assets are placed where they will have the least tax impact.  It is important to ensure your attorney and financial planner are licensed for the state(s) where your business is located; we cover the Maryland / Virginia / District of Columbia region, plus several other states.  Both the federal and state governments can impose death taxes, and you’ll need experts who know the applicable regulations.

The emotional aspect of planning for the estate can be very difficult for the family to face.  The estate is naturally tied also to succession, and it goes without saying that succession planning is another essential component for your family-owned business.   Navigating the Internal Revenue Service’s (IRS) tax laws is difficult at best, and the experts can assist with such family business benefits as the Taxpayer Relief Act of 1997.  A provision of this act is the Qualified Family-Owned Business Interest Exclusion, which provides some estate tax relief for family-owned businesses.  The requirements are difficult to interpret, and other concurrent regulations affect this act, therefore an estate tax professional should oversee this process.  Estate tax and other regulations and acts enacted by the IRS may be found on the IRS site,

Successfully running your family-owned business involves a lot of work and sacrifice; protect that valuable asset so your family-owned business will pass intact to the next generation.

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