Estate planning often involves business succession planning as well. Parents create a business that grows over time, employs many people and becomes part of the local culture and in some cases, expands into the region or country or even worldwide. While we often think of the personal inheritances and personal assets in estate planning, when it comes to a family business, there is so much more involved. Careful and well-timed planning is important to ensuring the business continues to provide not only for future generations but also continues providing the service or product that was established.
Let’s take a look at both a national and local example:
The recent movie “All The Money In The World” and the TV series “Trust” were about John Paul Getty and his heirs. He was a billionaire who had created the bulk of his estate through oil. The TV series and movie focused around the kidnapping of his grandson and the turn of events within the family members thereafter.
Locally a cornerstone family was affected when George and Mary “Mimi” Cecil passed away in October and November of 2017 within weeks of each other. George had inherited the family homestead and its many acres known as the “Biltmore Estate”. It became a National Historic Landmark and is only one of the few “Castles” remaining within the United States. He built it up from a neglected mansion into a world class tourist attraction. He also built hotels, restaurants, meeting and event space, along with an Equestrian Center, Skeet Shooting, Farmyard, Outdoor Programs and a number of other spin off businesses. He also owned a valuable commercial building and various other assets.
The Estate Taxes that apply at the time of the Cecils’ passing in October and November of 2017 were those set prior to the new Tax Act that was signed on December 20, 2017. The older law that applies allows each person to be subject to Estate Taxes if their assets were above roughly $5.5 million dollars. Some basic Estate Tax Planning could double that to roughly $11 million dollars for a married couple. If the Cecils’ only started doing serious legal advanced Estate Planning by moving assets in the more recent years, there could be a serious Tax problem. Federal Estate Taxes are normally due six (6) months after the Date of Death and would be due and payable in cash.
Estate Taxes are applied when assets move from one generation to other generations. Not when they pass to a spouse.
The Biltmore Castle
Not only is the Biltmore Estate castle worth untold millions, many of its collectible contents would be also. The original owner of the Biltmore George Vanderbilt was a world class collector of antiquities. He collected many one-of-a-kind items that are invaluable. For example: What is the Fair Market value of Napoleon’s Chess Set from when he was exiled on Elba? What is the Fair Market value of a 1st edition Noah Webster Dictionary? The Biltmore House contains many tremendously valuable antiquities including the only complete sets of certain ancient tapestries in the world. What is the fair Market Value of all of those antiquities?
Sam Walton, J.P. Getty and Planning Over Time
When Sam Walton, founder of Wal-Mart, passed on he had moved most of the ownership of his business out to his family prior to his passing. This would be done over several decades. That is a major way to limit Federal Estate Tax exposure. Mr. Getty was able to limit his exposure by moving controlled assets out to family members well prior to his death and also into non-taxed charities, including a very prominent Art Museum.
Estate Tax Valuations
In a massively valued Estate including the Biltmore House, many extremely valuable antiquities, other very valuable pieces of commercial real estate, and other enterprises, it could take a long time to value the assets. Thereafter the IRS will issue a Tax Bill as to what they claim is due. The families’ attorneys and accountants would then enter into negotiations seeking to limit that Estate Tax exposure. This could lead to litigation in Court and appeals taking years to resolve. The family would also be considering ways to raise cash to pay any Estate Taxes.
Musical Chairs
To me, Estate Planning is like a game of “Musical Chairs”. When the music stops one has to sit down. Then the questions include: What Assets do we Own? What is the Tax Law at this time? What Estate Planning has been done? Who’s in charge? Based upon those spinning issues it will be determined who gets what including the IRS.
Remember when the actor James Gandolfini died unexpectedly with a Simple Will (done by his real estate lawyer), his major beneficiary ended up being the IRS. The IRS received 60% of his estate as opposed to his two sets of children from two different wives and his current wife with whom he was happily married. All of that could have been avoided with good Estate Planning done by an experienced Estate Planning Attorney.
The Tax Bill is Due
It will be interesting to see where matters settle out with the heirs of the Cecils’ and Biltmore and the IRS. We will keep our eyes and ears open to see how this might land. All of this is definitely of local interest to those of us in Western North Carolina, home of the Biltmore Estate. Others throughout the United States and possibly elsewhere will be interested also.
With the recent televised Royal Wedding with Prince Henry and actress Megan Markel of the United States, we have a window into the tremendously valuable properties and assets that are often moving from one generation to the next. (The Prince is English Monarchy). Often, what passes for Monarchies in the United States are those who have been tremendously successful financially and their families. They are seeking to get those hard earned assets down to the next generation and not donate them to the IRS. This can be a real adventure for the families and their Estate Planning Attorneys and Accountants.
Next Time
Next time we will look at how Succession Planning applies when a Family Business moves from one generation to the next.
At the Law Firm of Steven Andrew Jackson, Attorney and Counsellor at Law, we have helped hundreds of families protect themselves and their loved ones, avoid Estate Taxes and Probate Costs, and keep their Estate Plans current with the law through The Customized Protective Estate Planning Solution™.