Was working with a family recently. Their child had searched online for information about how Louisiana families can establish an estate legal program to avoid estate tax and other government interferences.
Over the years, the family worked hard to establish and maintain a successful business. The parents owned the majority of the stock of the S Corporation, and their child owned a smaller number of shares.
The business had been informally valued recently and it appears it is likely there will be estate tax when the parents die. In short, a married couple can pass along about $11 million to their heirs free from the 40% federal estate tax.
The couple asked me how the tax would get calculated when they die. They asked, "Mr. Rabalais, will the government swoop in and take over all of our business records and business assets immediately after we die so that the estate tax can be calculated by the Internal Revenue Service?"
I said, "No, it doesn't work quite that way. After you die, your child will be responsible for filing a federal estate tax return within nine months of the date of your death. Your son will hire someone like me to help him comply with all of the estate tax reporting rules. Your son will hire an appraiser to appraise the value of your business and your property. All of these appraisals will be attached to the estate tax return. If tax is owed, your child will use your assets to pay the tax. The IRS audits every estate tax return. If they feel your child did an adequate job reporting all of the assets correctly, they will accept the return as filed. If the IRS wants to challenge the valuations or other information, they have the right to do so."
So, we're starting a plan now to help this family arrange their estate so that, with the actions that they take today and in the next several years, they will be reducing the value of their estate that will be subject to the 40% estate tax.
In addition to federal estate tax avoidance, we are also putting an estate legal program in place so that it will be simple for the surviving spouse, and the child, to inherit the assets without having to go through the court-supervised and government-controlled Succession procedure (also called "Probate") when they die.