by James John Jurinski
James John Jurinski (),
JD/CPA, has a law office in Portland, Oregon and teaches
family business planning at the University of Portland.
He is the co-author, with Gary A. Zwick, of two books on
family business planning published by the American Law Institute-American
In my view, there are few things more important
to business-owning families than good tax planning. Failure
to plan a tax-efficient wealth transfer, or having an ineffective
plan, can diminish the amount of wealth that ultimately
reaches the next generation. Although some would argue that
this is not a worthy goal, I believe good tax planning is
important in order to ensure the viability of a family business,
as well as to foster harmonious relations in the family.
To plan a tax-efficient wealth transfer:
Be pro-active and start planning early
Family members need to initiate tax planning; it doesn't
happen automatically. Because tax minimization may require
corporate or ownership changes in anticipation of the
transfer, tax planning needs to start many months, if
not years, before the ultimate transfer.
Find an experienced tax lawyer
Without knowledgeable planning, the family will miss out
on tax reduction opportunities. For example, if the family
business is sold at a profit to outsiders, each shareholder
in the family business will have to pay a capital gains
tax on the profits. Depending on the structure of the
sale, the sale may trigger not just one but two levels
of tax-one at the business level and the other at the
owner level. This second level of tax can severely erode
family members' wealth.
Develop a charitable giving plan and an
Giving and estate planning can produce a tremendous tax
benefit. Proceeds from the sale of the family business
will go further if your individual taxes are also minimized.
For example, one powerful technique is to use a charitable
remainder trust to provide lifetime income to family members,
combined with a charitable gift of all or part of a company's
With sufficient time and planning, your family
and your advisors can design a wealth transfer plan that
is both tax-efficient and fair to all family members.
For a perspective
on why individuals might deliberately choose to pay higher
estate taxes, see "Wealth: We Didn't Get Here On Our
Own" by Chuck Collins and "To Whom Much Is Given,
An Interview with William H. Gates, Sr.," in "The
Everyday Ethics of Wealth," More Than Money Journal,
Issue #31, Fall/Winter 2002, pp. 24-27. See also, in this
issue ("Passing the Torch: The Great Wealth Transfer"),
our Viewpoint section, entitled, "What Will Your Legacy
Be?," pp. 28-31.