Next Generation Leadership

Professor Shackelford On Transfer of Corporate Assets: PLAN

April 19, 2012 By Kristina Magnuson

Professor Doug Shackelford

By Josh Cooke, MBA 2013

Estate Planning is a huge concern for many family businesses.  Every family wants to maintain a lasting legacy that can be passed on to future generations.  Doug Shackelford, the Associate Dean of MBA@UNC and Meade H. Willis Distinguished Professor of Taxation, recently stopped by class to discuss the topic of Transfer, Estate, and Gift Tax Planning.   His manner and humor made this rather dry material engaging and entertaining!

He discussed many of the pros and cons around donating an estate to charity, which pays no estate tax, versus passing a business on to the next generation, a pertinent topic in Family Business II.

To be clear, the Estate Tax is a tax on the transfer of wealth from one party to another.  It occurs upon the death of a business owner/founder, and can have a significant impact on a business and any heirs who may inherit the business.  The value of a business determines the amount of tax that must be paid directly to the Federal government and/or a State government.  The issue is that many businesses and heirs do not have the cash on hand to pay a large tax bill that could run into the millions of dollars.  Without proper planning, a business that has been within a family for many years could necessitate a sale to another party just to pay the IRS.

It is a very controversial and politically charged topic.  The words used to describe the tax often affect a person’s views:

The term “Estate Tax” conjures up the appearance of grand estates and large sums of money that get passed along from one wealthy generation to the next.  Sure – tax the rich business owners!  They can afford it!  Let the next generation work hard and earn their wealth.

However, use the phrase “Death Tax”, and those same supporters may oppose it.  Is it fair to tax a successful business because someone has passed away?  Is it not fair for someone who worked incredibly hard their entire life, built a successful tax-paying business be free to then pay it forward to his or her heirs?

According to Doug, only 1% of the Federal Budget is paid for by the Estate Tax.  It is also one of the most volatile areas within the tax code, and seems to change frequently.  During the past 10 years, the top rate has ranged from 0% to 55%, with an exemption ranging from $1 million to infinite.  The message for our class was clear:  for a family business, the implications of this tax can be huge without proper succession and estate planning.