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Planning for Your Family’s Future: Estate Tax

Backs of couple with gray hair in foreground looking at backs of man, woman, and two children in foreground

Potentially defer payments over a 14-year period with IRC 6166.

 — Brandon Butler

Picture this scenario: A business owner puts a lifetime of work into building a thriving, successful company. By the time they pass away, their business comprises much of their personal net worth – or “estate” for tax purposes. This estate – everything the person owned, including possessions, property and their business – is valued at $50 million. Great for their family, right? 

Yes and no. Because the IRS imposes an estate tax of 40% on all assets in an estate over $13 million, the business owner’s family is now on the hook for about $15 million in estate taxes. They’ll likely be forced to sell assets to pay this tax – not great for the family, and not great for the business or its legacy. This situation isn’t rare, either: many successful family businesses encounter this exact scenario.

It doesn’t have to be this way. This situation should always be accounted for, planned out and mitigated. Engaging with a trusted advisor can go a long way in helping to secure your family’s future – and the future of your business. As an example, the IRS offers some little-known ways to potentially mitigate the estate tax, including section 6166 of the Internal Revenue Code. This states that a personal representative may defer payment of the applicable estate tax if the interest in your closely held business exceeds 35% of the deceased’s adjusted gross estate. 

So, in the case of our example family business, it is likely that the owner’s heirs will meet the eligibility criteria since the business accounted for much of this estate. If so, they can defer their $15 million taxes debt over a 14-year period – thereby taking some pressure off an already grieving family.

A trusted financial advisor can help you take the necessary steps to create a financial plan and secure your family’s future. The Texas Capital Private Wealth Advisors team offers a full suite of solutions while leveraging a client-centric approach designed to help you navigate any circumstances – while ensuring your family is well taken care of. Click here to meet the advisors in your area.