Many business owners are just trying to survive the coronavirus pandemic, so it would make sense that they put longer-term projects on hold, like planning the succession of a business.
Jeffrey Jaskol of the Jaskol Group suggests that could be a mistake. The pandemic has actually helped to create an especially opportune time to lock in some favorable terms for a lot of businesses, but chances are, they won’t last.
At an NJBIA webinar last week, Jaskol said the tax reform law of 2017 dramatically increased the “unified exemption,” allowing estates of nearly $12 million to be transferred without incurring estate taxes. And the CARES Act, a congressional response to the pandemic enacted in March, allows for the decreased valuation of businesses to reflect the impact the health emergency is having on them.
“Most if not everybody I’m talking to on this webinar today should be able to have their business operate in a zero estate tax environment,” Jaskol said. “That says whatever you’ve worked so hard to build and whatever you’ve created for yourself and your families and your employees will be in a position to continue.”
These rules, however, will probably not be in place for that long. The estate tax exemption of $11.58 million is set to expire in 2026, and the valuation discounts will allow more of a particular business’ assets to be included under that figure. Additionally, businesses can set up their estate now and lock the terms into place for when succession occurs, regardless of what happens to the tax laws, Jaskol said.
The math is pretty simple. In 2026, the unified credit will drop from $11.58 million to $5 million, so businesses with more than $5 million in value will have to pay a 40% estate tax on as much as $6.58 million of their assets. That’s a tax bill of up to $2.6 million.
In addition, there are discounts. If a business could apply a 30% discount on its assets before locking them into estate tax planning, it could protect assets of up to $16.5 million in full value. If that valuation can be raised even further, to say 40%, a business could protect $19 million in assets.
The key is for businesses to take advantage of the estate tax laws and rules that are in effect now.
“The point here is by acting today, and by working through the process, there’s a considerable amount of opportunity for you,” Jaskol said.
U.S. tax law also has an alphabet soup of acronyms for various gifts, trusts, and discounts that can lower estate tax liability even further. Which leads to Jaskol’s final point—don’t try to do it alone.
“You want to get help; that’s really important,” Jaskol said.