Planning for Federal Estate Taxes

April 13, 2006

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When seeking to limit liability in the business structure, the small business owner must be aware of estate planning issues when forming a business, as these considerations can have important implications when initially establishing the business. Proper initial business formation can save hundreds of thousands of dollars in estate taxes in later years.

Estate planning is, in fact, a type of asset protection planning. Here, assets, which can be quite substantial, are being protected from the claims of the federal government.

This section can cover neither estate taxes nor estate planning to reduce these taxes in any comprehensive way (see our more complete discussion of estate taxation issues and business ownership). However, as a small business owner, you should be familiar with some of the basics of estate planning, because federal estate taxes can be significant, and a business form can be chosen to eliminate or reduce these taxes.

And, certainly, the rules have recently changed when it come to estate planning. Estate tax reform passed by Congress in 2001 has created new and different opportunities, as well as some uncertainties.

Moreover, this discussion addresses a common estate planning tool called the family limited liability company and how it can be utilized to reduce or eliminate estate taxes when transferring business interests to your family.

Finally, before making the transfers, it's important to be aware of the implications of changes in ownership with regard to taxes and management/control of the business operations.