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A taxing estate Featured

12:26pm EDT October 30, 2001
Editor's Note: In our continuing efforts to improve our coverage of financial perspectives, I'd like to welcome our newest columnist, Ruth Forsyth, who is with Acacia. Each month, she will answer your questions about anything related to managing your money. Please send questions in care of Daniel Bates to dbates@sbnnet.com or directly to her at ruth.forsyth@acacia-pgh.com.

I've been hearing a lot about the new tax law, especially the repeal of the estate tax. How does that affect me as a business owner? Is my old estate plan obsolete since I no longer have to worry about my family being forced to sell the business at my death to pay taxes?

Your question really addresses two separate issues: Do you need estate planning as a business owner, and does the new tax legislation mean your family won't have to pay taxes?

First, do you still need an estate plan? Despite popular opinion, avoiding and minimizing taxes is only a small part of the estate planning process. Other issues include how to pass on the business, who is going to run it and how you plan to fairly treat family members who are not actively involved or have no interest in the business.

If the business won't be going to a family member, who will run it until a buyer is found? If you have a buyer in mind, does he or she have the financial capacity to purchase it from your family in a fair and timely manner? It's very important that you have an estate plan.

Second, will your family still have to pay an estate tax? When it comes to taxes, change seems to be the one constant. What's here today won't be tomorrow. Maybe.

The estate tax repeal is not as straightforward as it appears. To gain insight, I spoke with Steven Seel, special counsel to Springer Bush & Perry PC and a specialist in family wealth transfer matters and estate planning.

''The new tax law has lots of changes, many of which are pro-taxpayer,'' he says. ''But the elimination of the estate tax is somewhat illusory. It's only eliminated for one year, in 2010. In 2011, it comes back in with a $1 million exemption. So unless you have a terminal condition or have a life expectancy that's less than 10 years, your planning today has to assume that you will die after 2011 with a $1 million exemption from estate tax.''

While the new tax law gives some money back to the taxpayer, it also has hidden take-backs. In 2004, for instance, the qualified family business exclusion is eliminated. In 2010, with some exceptions, the step-up in basis is eliminated for assets passed on at death. Over the next several years, the credit given by the IRS for death taxes paid to Pennsylvania (or any other state) will be considerably reduced. What you save in estate tax could easily be gobbled up by a tax with a different name.

So how does the new act change your planning choices?

''Flexibility will be the key over the next nine or 10 years,'' says Seel. ''The problem with so many planning techniques is they require the business owner to give up some degree of control. That loss of control restricts the ability to change course in the future.''

Experience proves that creating a successful plan is a process that should involve professionals from financial planning, investment, legal and tax working together in an integrated manner. Only time will tell what our future tax climate will be, but a right-minded planning process will help you reduce current tax risks, meet your personal and professional goals, and retain flexibility to change in an uncertain future. How to reach: Steven Seel, Esq., (412) 281-4900

Ruth A. Forsyth, MS, CFP, CSA is an investment advisory associate and registered representative with The Advisors Group, Acacia's registered investment adviser and broker/dealer. She co-hosts ''All Things Financial'' Wednesdays from 7 to 8pm on 1410-AM, KQV Radio. Reach her at (412) 922-4360 or ruth.forsyth@acacia-pgh.com.