Many high net worth business owners are going to be impacted by the Federal Estate Tax – a rate that is higher than the highest Income Tax Rate. It’s a 40% tax on any assets exceeding the Unified Credit level. The IRS has two “Trump Cards” to play that can push you into that tax bracket.
Personal or corporate-owned life insurance can unintentionally bump the values of their estates at the worst possible time – death. The second and potentially even more damaging trigger is pegging the value of their business. They may be operating with the notion that Book Value will be the accepted method used by the IRS. It typically is not. Some combination of Book Value and Capitalization of Earnings is a far more likely method.
Imagine what would happen if your business suddenly had to continue without you, a partner or key employee. The death, disability or retirement of a key executive causes a number of problems which can be addressed with proper planning.