Small Business Solutions to Minimize Estate Taxes

If you're an entrepreneur, your business is likely your most valuable asset. Fail to take the time to plan for disability or death and your estate may face significant tax consequences. So how do you protect your business and your heirs?

Schedule your free tax consult with 1-800Accountant

Trustpilot star rating bar
small business solutions to minimize estate taxes

Contents

Updated on: June 12, 2024
Read time: 3 min

As an entrepreneur, your life is frantic—every day is different from the day before. Planning for what will happen to your business after you're gone is probably the last thing on your mind. Although death or incapacitation is a reality many entrepreneurs avoid planning for, the best defense against resulting business catastrophes is a well-prepared, flexible estate plan. The most crucial consideration in your plan is taxes. Understand them, take advantage of any changes to them, and if possible, avoid them all together.

Estate tax

The most important part of estate planning is minimizing the estate tax hit for your heirs. You have probably heard of this tax, also called the "death tax," which is a charge levied on a decedent's entire estate, regardless of how it is disbursed. It is a tax imposed on the transfer of property, including a business, from a deceased person to his or her heirs, legatees, or devisees. While married individuals are allowed to leave all of their financial holdings to a spouse free of any estate tax, when the surviving spouse dies, his or her heirs could face a huge tax bill if a well-thought-out estate plan is not in place. In 2008, for example, estates valued at $1.5 million or more were taxed $555,800 plus 45 percent of the amount over $1.5 million.

Upcoming changes

The federal government grants an estate tax exemption, known as the "applicable exclusion amount," that is subject to yearly changes. This exemption effectively increases the amount of assets an individual can pass on to his or her family without exposing assets to a hefty estate tax. In 2008, $2 million could be passed tax-free to an heir. This number rises to $3.5 million in 2009. Business owners who pass away in 2010 will have a good chance of eluding the estate tax all together—it will be repealed that year. In 2011, however, the tax is back in full swing, with only $1 million allowed in exempt assets.

The key to navigating tax changes is to include some flexibility in your estate plan. If you can, rework your estate plan each year to account for tax law changes at the federal and state levels—some of the changes will go beyond increasing or decreasing exemption amounts. Let's say you pass away and have not accounted for a huge alteration in the tax code which would save your heirs hundreds of thousands of dollars. When establishing your estate plan, include provisions that will allow your heirs to adjust your estate to the current tax circumstances.

Deferrals and gifts

Besides planning for exemptions, there are other methods available to help you decrease your tax burden:

  • Estate tax deferral: The tax code allows you to defer the estate tax by extending payout. An installment payment plan can be set up for estate tax payments, proportional to the value of your business.
  • Gifting: The annual gift exclusion allows gifts of cash or property of $12,000 or less, per recipient, per year, to be free of federal gift taxation. Such gifts, including the appreciation in value and the future income derived, are excluded from federal, estate, and generation-skipping transfer taxation. Use this provision to transfer portions of your business to your beneficiaries while you are alive, reducing the amount of your estate subject to taxation after your death

Do your homework

There are other beneficial legal devices to look into when developing your estate plan. The following strategies require longer explanations and relate to specific circumstances. However, if they're right for you, these strategies could prove advantageous for the people you're leaving behind. Investigate the following and see how they may be able to help your family's future:

  • Living trusts
  • Marital deduction trusts
  • The unified credit/exemption equivalent trust
  • The dynastic trust
  • The statutory grantor retained interest trust

Remember, revisiting your estate plan is important if you experience a major life change, such as marriage, divorce, or a new addition to your family, like a child or grandchild.

You should always discuss any estate plan options with your financial advisors. Make sure you're taking advantage of every legal tool available under the current estate tax laws. The later you start implementing an estate plan, the more costly the tax consequences for your heirs.

Schedule your free tax consult with 1-800AccountantSchedule Now
Twitter logoFacebook logoLinkedIn logoReddit logo

This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.

64 days ago
Trustpilot star rating bar

legal zoom is the way to go

The representative was very knowledgeable about how long it takes to transfer a deed from one person to the next he explained everything and he was very pleasant when speaking to him

Ross
64 days ago
Trustpilot star rating bar

I find that LegalZoom has all the…

I find that LegalZoom has all the answers if you're starting a business an LLC and incorporation or you're doing a trust or a Will. These are the people you want to trust don't go to an expensive attorney you're just throwing your money away. Legal soon gets five stars!

Sean Christopher
64 days ago
Trustpilot star rating bar

I spoke to the representative today about a Trust...

I spoke to the representative today regarding a question about an existing Living Trust. She was very helpful - told me exactly what I needed to know and how to accomplish it. As a representative in the Financial field I guide clients all the time on where to get documents done right - and its always LegalZoom - easy and effecient!

Gareth
73 days ago
Trustpilot star rating bar

We could not be more Pleased with the…

We could not be more Pleased with the help and service we had during the up dating of our Living Will and Advanced Directive

Richard Poulton
76 days ago
Trustpilot star rating bar

Legal Assistance for the rest of us

Legal Zoom has made it easy and affordable for us to create an LLC, a Will, and a Trust for our families.

K Chapman
79 days ago
Trustpilot star rating bar

pleasant and willing representatives…

pleasant and willing representatives ready to help me navigate through your system and supply attorney contact information for my legal questions for my last will & testament

Mark Impink
79 days ago
Trustpilot star rating bar

LegalZoom .com has exceptional, real, staff to help. I met one!

I purchased multiple accounts to update both our Living Wills and Estate Plans. After utilizing LegalZoom.com’s user-friendly and intuitive platform for these legal documents, I found it necessary to call for clarification on some information within our account. I spoke with Sandra Balderas, who expertly addressed the mistakes I had inadvertently made. Her professionalism and friendliness greatly enhanced the experience. I realized that LegalZoom is not only a straightforward website to navigate for such complex matters, but it also boasts exceptional employees. Thank you, LegalZoom.com, and especially Sandra Balderas, for guiding me through the process. I’m thrilled to have discovered LegalZoom.com.

Max -Phoenix, Arizona
79 days ago
Trustpilot star rating bar

Sarah was most helpful today regarding updating my estate plan

Sarah was most helpful today regarding updating my LZ docs created 3 years ago. She made sure I had all the information I needed, not just what I asked for. Thank you Sarah!

Diane Floyd
85 days ago
Trustpilot star rating bar

Quick and easy experience creating a…

Quick and easy experience creating a will package.

Kristin Steel
90 days ago
Trustpilot star rating bar

Used them past 10 years

Used them past 10 years. I needed another will and power of attorney.

MERLYN C
90 days ago
Trustpilot star rating bar

Tammy was wonderful and very…

Tammy was wonderful and very knowledgeable. It's because of her that I am going to open a living trust with legal zoom. She was great. Thank You

Erin
98 days ago
Trustpilot star rating bar

Pleasant Experience

Patience and weel given explanation about the process of how a "Living Trust" & "Deed" works after transitioning and guidance on how to contact an attorney whenever I need legal advice.

Sharron Martin
100 days ago
Trustpilot star rating bar

It was a breeze to deal with Legalzoom…

It was a breeze to deal with Legalzoom and finished my estate plan within an hour!! Thanks again

BT
104 days ago
Trustpilot star rating bar

Great team…

Mark and Legal Zoom make estate planning affordable and attainable.

Christopher Maginnis
136 days ago
Trustpilot star rating bar

Living Will & Forming my LLC

I have used Lega Zoom for several items, including my living will and items to form my LLC for my business. It's fast, easy, and thorough. The customer service is fantastic! I am working with David on a few items for my will,l and he has been a delight. He follows up when he says he will and is incredibly helpful. I highly recommend this company.

Kristen J
148 days ago
Trustpilot star rating bar

Nadia made it very easy for me to make…

Nadia made it very easy for me to make a decision to sign up and create my estate planning documents with legalsoom. She was very professional and knowledgeable about the package that I chose. She also offered her direct contact for any future questions I might have.

Melita D'Anna
157 days ago
Trustpilot star rating bar

Kylie helped me to review my history of…

Kylie helped me to review my history of trying to complete my estate plan and contacting a legal advisor that comes with my account. She was patient, knowledgable, and helpful.

Paula
161 days ago
Trustpilot star rating bar

I have worked with Mark Champ on… Last Will & Testament, Living Will, Quit Claim Deed

I have worked with Mark Champ on several documents I needed and every time he has provided me with every thing I needed and with so much graciousness and knowledge. It has always been such a pleasure working with Mark!!!!!!!!!!!!!

Cathy Donaldson
196 days ago
Trustpilot star rating bar

Most Dedicated Representative!

Patti Green was the most informative person in guiding me through the process of completing my estate plan . She was always there for me to answer my questions and give excellent advice . Also , she was very polite and considerate ! Legal Zoom is so fortunate to have Patti on their team . Thank you , Patti for all of your assistance and kindness !

Priscilla Page
274 days ago
Trustpilot star rating bar

Patti Green is GREAT!

Ms. Patti Green walked me through the Estate Planning process. She was very professional, patient and kind. Planning for when you are no longer here is very intricate and difficult. Working with Ms. Green helped give the assurance that I am doing the right thing for myself and loved ones.

TRINESSA
Rated4.6out of 5 based on23,703+ reviewson

Showing our favorite reviews