Are ownership stakes in such business not hit with the estate tax then?

Thanks for sharing.

CR

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I believe most farms are considered as limited companies or kin now, at least in the UK, which doesn't suffer from the same penalties and actually provides a lot of advantages such as able to get cheaper insurance, etc. Not sure of how it is in the USA, but TinCow probably knows a few recommended legal routes where families don't miss out where farms with large value assets are involved.

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As a preface, I am not an estate attorney, so I'm not knowledgeable about all the intricacies of the system, particularly about any specific farm exemptions and whatnot. However, there are plenty of ways to structure a business which do not put the assets of the business at risk. In short, what you do is set up the business so that the business itself owns the assets. In the case of a farm, that would likely include the actual real estate, plus the expensive equipment and such. The owners of the business then become employees, and are paid out of the profits like in any normal business. Since the business owners do not technically own the farm (the business does), the estate tax does not apply to those portions of the business when someone dies. If structured properly, the assets that are in each individual person's name would be restricted to liquid assets and personal profits which do not impact the functioning of the business itself.

Think about it any other business context, and you'll see what I mean. Businesses do not go bankrupt due to the loss of half of their assets every time the business founder dies. Such a situation would, quite rightly, be outrageous and cause major problems for the economy. That's why it doesn't work like that.

On top of all of that, anyone who knows they will have estate tax issues can avoid some of it by simply planning ahead. Each couple can gift up to $26,000 per year to any person without incurring any tax penalties. So, if a family has two children and four grandchildren, they could give away $156,000 per year tax free. And that's assuming each child is not married. If they are all married, that doubles the number of people who can receive gifts, and allows a transfer of $52,000 to each couple, for a total of $312,000 per year to 2 married children and 4 married grandchildren. To ensure the money is handled properly, it can be put into trusts with whatever access restrictions on them that the parents desire. Plan far enough ahead, and a family can easily transfer millions of dollars to their heirs tax-free, all of which will reduce the exposure of their remaining estate to the estate tax as well. If you have so much money that even 10-20 years of structured trusts and gifts won't clear your exposure... well, perhaps you're just really, really wealthy and your heirs aren't at risk of being impoverished by the estate tax.

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Thanks, TinCow!

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SFTS always seems to know what the answer is....... after the answer is posted.

The estate tax is what it is. I don't particularly like it but we all know it is probably not going to go anywhere. I wonder if in the case of a true small business it would be possible for the US government to distinguish between legitimate businesses and personal wealth. Because as CR said its not unfathomable to imagine a small business worth more than 2-3 million especially depending on its type and location.

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I mean really? Also the hiliraty that there is somehow this massive group of yeoman farmers still out there makes me double over in laughter.

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There are. Plenty of 500-1000 acre farms owned by a single family in comparison to the conglomerates I imagine you picture. And plenty of those farms are worth quite a pretty penny. Anyway theres a federal exemption for them so, meh.

As I said my concern is with other things.

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I don't think you guys are understanding "small business" here as it is being discussed.

Yes. It is owned by a few people (mom, dad, grandma, uncle Lou) Anyone with half a brain would incorporate, for tax simplicity purposes and also legal protection, perhaps an LLC or the like, and move these assets from themselevs to the business. Even if they didn't incorporate and they did sole propiertership or used an umbrella, the assets would still fall under the company

These stories we hear of people lsoing the family farm is because granddad was scared of computers and shot at the census man. With a little planning and perhaps some help from his kids, these situations could be avoided if the business is structured properly if, in fact, it was business. Now if this was just some guy on some land who grew all his own food and meat, then there is a good potential that this land could cause tax issues. I know people like this. And I also know they sell their bumpber produce and livestock locally and under the table and dont pay taxes on it, and if they would just become a legit "business" this could be avoided

Personal credit and business credit are two different things.

I would like someone here to find me a "family farm" that is worth millions that has not been turned into a sole porpiertership, umbrella or LLC etc. I simply don't believe they exist

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