The federal estate tax can be reduced or even eliminated with advanced estate planning measures for any estate. In fact, the federal estate tax is a voluntary tax; if you don’t plan, you volunteer to pay it. Here is a memorable federal estate tax lesson from the owner of Hooters, the infamous restaurant chain.
When Robert H. Brooks died, his family sold Hooters, in part, because was it worth approximately $250 million dollars and the estate tax, at that time, was 46% or $115 million dollars. That’s right, this $1 billion dollar in annual sales company, was sold to pay estate taxes.
Brooks didn’t have appropriate advanced estate planning. This is a problem for many family owned businesses; they simply don’t plan.
If you have a family owned business, consult with a qualified estate planning attorney and plan early. It is important to have all legal documentation in place while you have legal capacity; and, because life insurance is often a key in advanced estate planning. Insurance costs rise each year and the owner may become uninsurable.
For example, life insurance may be used to fund a buy-sell agreement, pay federal estate taxes, equalize inheritances, provide an inheritance for children not in the family business, or provide an inheritance when other techniques such as a charitable lead trust delay assets passing to the family for federal estate tax purposes.
Life insurance trusts are the only way to leverage the federal estate tax and generation skipping taxes. In addition, they can provide asset protection for assets used for all those reasons cited immediately above.
$115 million in taxes is surely incentive to get a good estate plan in place. If your family has a business, consult with an experienced and qualified estate planning attorney to get an advanced estate plan in place. Don’t volunteer to pay the federal estate tax.