We are at the brink of the largest intergenerational wealth transfer in history. In the United States alone, it is estimated that over the next three decades, there will be a transfer of wealth from the Baby Boomer generation to their heirs that surpasses $30 trillion. This wealth transfer process is certainly underway on Long Island and has been noticeably accelerated by a number of changes in the tax act that was passed by Congress last December.

The Tax Cuts and Jobs Act of 2017 increased the federal gift and estate tax exemption to over $11,000,000 per individual or over $22,000,000 combined for a married couple. Compared to the previous gift and estate tax exemption of $5,490,000 per individual, the act provides for an unprecedented exemption increase. Individuals who have delayed the estate planning and business succession process now have more attractive planning opportunities. With this said, individuals must still be mindful of New York State estate taxes.

Although New York repealed its gift tax some time ago, New York domiciliaries still unfortunately have to deal with a state level estate tax. New York currently has a much lower estate tax exemption of $5,250,000, which increases slightly to $5,740,000 beginning in 2019.

Prior to the enactment of the act, the legacies that many self-made baby boomers created were threatened by the federal estate tax. This was particularly true in family owned businesses. While inevitable aging and potential retirement are not life changes many active owners like to consider, planning is crucial to the long-term success and continuation of any family business. Statistically, only about one-third of all family businesses successfully make the transition to the second generation. One of the main reasons for this staggering failure rate is lack of proper planning. Therefore, it is imperative that business owners develop a comprehensive plan to deal with the transition of the family business and the estate tax dilemma.

The sense of urgency to undertake some form of planning is greatly heightened by the fact that the increased federal gift and estate tax exemptions are set to sunset back to their prior levels on January 1, 2026. As a result, individuals have a limited window of opportunity to utilize these increased thresholds and maximize their estate tax savings for the next generation through lifetime gift giving strategies.

Long Islanders are seeing the act and its increased federal exemptions as a call to action. Recent political publicity has certainly brought the estate tax to light for many Long Island patriarchs and matriarchs of family owned businesses who now realize that without proper planning, their heirs might eventually be put into a position where they would be forced to sell the family business to pay estate taxes. Typically, business owners have illiquid estates which unfortunately forces surviving heirs to liquidate assets at greatly reduced prices or borrow against any real estate or stock of a closely held business to pay the estate tax bill. All of these scenarios are problematic and leave few good options to meet the estate tax obligations, which must be paid within nine months of an individual's death.

In light of this, many Long Islander business owners have already seized the estate tax and business planning opportunities afforded by the act. This proactive approach will give the next generation the greatest possibility of success in the family business.

Originally published by libn.com

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