`Tis the Season for Estate Tax Planning

Article excerpt

It's the holiday season, a time for family togetherness, Christmas cheer and succession planning?

While it's not exactly a Norman Rockwell moment, financial officials say any time the whole family comes together provides an opportunity for business owners -- with an eye towards the looming tax season -- to make plans that will lessen the impact of the estate tax on their heirs.

The first step in that process is naming a successor. But that's not as easy as it sounds.

"They've got to think in terms of `who is the best person to succeed us in running the business?'" said Ben Byers, manager of Bank of Oklahoma's Personal Trust Department in Oklahoma City.

"Is it the oldest son? Is it the smartest son or son-in-law or daughter? Or what do you do with the people, with the kids that are running the business, involved in the business, and those who aren't? And how do you be fair about that? So succession planning forces some business owners to face some pretty challenging questions."

Those tough questions make many business owners reluctant to approach the topic.

"They postpone making those decisions because they don't want to hurt the feelings of one of the other children," said James R. Dickson, president of BancTrust, the trust and investment management division of BancFirst.

The fact that the topic is also associated with one's demise carries a psychological weight that causes many business owners to procrastinate. As a result, many entrepreneurs put off until tomorrow the business planning they should have done today. And that's a big mistake, Dickson said.

"Maybe they have a child, but in the back of their mind they think that child really hasn't shown an interest in coming into the business, but yet they're afraid to say that to their child and they just don't do anything," Dickson said. "And then what happens is they pass away and there may be substantial estate tax that is due and (the children) have to liquidate the business just to pay the estate tax. Everybody loses in that situation."

The issue of succession is a common problem that financial experts have to deal with when they first meet with a client.

"A lot of times business owners haven't made the kinds of decisions that they need to make on the succession planning side so you kind of end up looping back into it," Byers said.

He pointed out that the decision to name an heir isn't set in concrete and can be altered as circumstances dictate.

"The succession planning is something you need to be on top of as you go. And that will change," Byers said. "Because there could be a clear heir apparent to a company and they may decide that `I just don't want to do this anymore,' or you could have a medical problem. …