Let's Fly Our Flag!Written by Cyndi Roberts
"The flag stands for all that we hold dear -- freedom, democracy, government of people, by people, and for people." --Henry Cabot Lodge, 1915No matter what political party one belongs to, or what one's particular view is concerning events in Iraq and Middle East, fact remains that our American soldiers are there. A good many of them are National Guard troops and reservists from various states, who have been activated and are being deployed overseas to a war zone. These are soldiers who are taking time out from their lives and families to serve -- call has come and they are responding readily and whole-heartedly. Let's all show our support for them and all our military personnel by flying our national flag every day. Remember, our flag should always be treated with utmost care and respect. The flag represents a living country and, as such, is considered a living thing. Always display flag with blue union field up.
| | YOUR FAMILY BUSINESS AND YOUR ESTATEWritten by Dave Kauppi
As Penn State professor William Rothwell ominously points out in forward to Exit Right: A Guided Tour of Succession Planning for Families in Business Together, more than 40% of people who run closely held operations that comprise 80% of North American economy will retire by 2007. Those businesses will either be sold to a third party or management team, closed down, or passed on to next generation. In this article I will focus on passing business on to next generation. Tax laws still favor home ownership with mortgage interest as a tax-deductible expense. The government has also encouraged passing of a business from one generation to next with several favorable estate and gift tax rulings. Estate planning attorneys have utilized IRS ruling 5960 to minimize estate and gift tax owed for a business either gifted to or inherited by next generation. The business is often placed in one or more LLC’s and divided up into minority pieces to take advantage of very substantial and legal minority discounts, often as high as 40%. As is often case, a business owner will have, for example, 4 children. Two sons will be actively involved in running businesses and two daughters have built lives totally separate from business. Because 85% of value of estate is tied up in value of business, to be “fair” business is gifted and willed to four siblings in almost equal proportion. Because sons are running business, they will get slightly more of business and slightly less of remaining estate. This gives them majority interest in business. After dad leaves business, two sons will continue to run and grow business without any input or participation from their two sisters. Typically business does not pay any dividends and two sisters’ portions are non-liquid because there is not a good market for selling minority stakes in a privately held business. Also, there is generally a very restrictive buy sell agreement that favors majority holders. The sisters have no idea what “fair value” of business is and only indication they have ever gotten is an official IRS gift tax or estate tax return with 40% discounts applied. If enterprise value were, for example, $50 million and two sisters owned a combined 40%, you would think that they had an asset worth $20 million. The only document they have seen, however, is gift or estate return, valuing their portion at only 60% of that number, or $12 million. The brothers feel entitled to lions share because Ann and Julie had nothing to do with building this business. The brothers pay themselves big salaries and benefits and pay out little of no dividends. They may approach sisters with gift tax return and restrictive buy sell agreement in hand and offer to generously buy out sisters for a combined 8 million, because that is “all company can afford to pay.”
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