Enacted in 1916 to help pay for World War I and continued in the 1920s and 1930s to thwart the concentration of wealth, the estate tax -- which until last year imposed a levy on inherited assets at rates of up to 55% -- exacts a toll on small-business owners. Nearly 90% of National Federation of Independent Business members favor repealing the estate tax.
Good news, bad news
The Economic Growth and Tax Relief Reconciliation Act of 2001 -- signed into law last June by President George W. Bush -- contains both good and bad news. The new law phases out the estate tax starting in 2002 and eliminates it entirely in 2010; that's the good news. The bad news is that the tax will return in 2011 -- with a top rate of 55% -- unless Congress acts to extend the new law's provisions.
Daniels sees the potential for nightmare scenarios. "This is pretty gruesome stuff," he says. "If a guy gets in an accident on Dec. 15, 2010, when there is no estate tax and he's permitted to linger until 2011, the estate tax goes back to 55%. He practically has a familial duty to die."
Updating your plans
The uncertainty of permanent repeal also has estate planners in a quandary. Federal estate and gift taxes brought in $29 billion in 2000, according to the federal government's budget agency, the Office of Management and Budget. "If you look at the demographics, with all those 78 million Baby Boomers entering retirement and needing Social Security and Medicare in 10 years, the government's going to need all the revenues it can get. So I think they'll probably not totally repeal it," says Stephen Brotz of Tampa-based Money Advisors Group.
The unresolved status of the law makes it more important than ever for small-business owners to update their estate plans regularly. Costs of estate planning can range from as little as $2,000 for a simple estate to $25,000 or more for sophisticated transactions that include family limited partnerships, trusts and company reorganizations.
Many small businesses find it hard to set aside that money for estate planning. "Small-business owners would rather use their resources to grow their businesses, buy new equipment or provide benefits to their employees than have to spend this money on an estate plan or insurance just to make sure their business continues to move forward in the future," says Steve Birtman, director of NFIB's Florida office.
So what should small-business owners do in light of the uncertainty of repeal? Don't wait to plan. Says Brotz, "The sooner you sit down and look at your options, the more potential options you'll have."
Bankruptcy Reform: Where It Stands
Changes being hashed out in Congress could mean major changes for individuals and companies.
By Robyn A. Friedman
House and Senate versions of the Bankruptcy Reform Act of 2001 -- passed by the Congress last March -- had been scheduled for discussion at a conference committee on Sept. 12. However, the attacks of Sept. 11 put the issue on the back burner. The committee, which will iron out the differences, met in November, but the legislation will likely remain stalled until consumer confidence and the economy as a whole pick up.
Here are the proposed changes to the bankruptcy law:
-- Before filing for bankruptcy, individuals will have to go through credit counseling at their own expense.
-- Under current bankruptcy law, the filing of a petition stops all collection efforts, including the collection of child support for dependent children of debtors. The proposed rules give child-support payments first priority and allow collection efforts to continue even after a petition has been filed.
-- Credit-card companies will be required to provide new disclosures to cardholders in the hope that the information will help them avoid getting into financial trouble.
-- Debtors who have the ability to pay must file under Chapter 13 -- and comply with a repayment plan -- rather than Chapter 7, which discharges all debts.
-- Debtors must repay the full amount due on auto loans, not merely the automobile's market value, as current law allows.
-- The law creates special provisions for small businesses, defined as companies with debts of $3 million or less. Such companies would have strict timetables for reorganization. For example, if there is no creditors' committee monitoring a case, the court must confirm the bankruptcy plan within 175 days. Companies that could not reorganize within that time would have their cases dismissed or converted from a Chapter 11 reorganization to a Chapter 7 liquidation.
-- Companies in bankruptcy will be prohibited from selling their customer lists to raise money to pay creditors.
The House and Senate bills differ radically with respect to the treatment of home equity. In Florida and four other states, debtors who file for bankruptcy can keep all the equity in their homes as long as they've resided there for at least two years. The House bill makes no change to that law, allowing states such as Florida to "opt out" of federal limits on the amount and type of property that a debtor may claim as exempt from creditor claims. The Senate bill, on the other hand, would allow creditors access to home equity in excess of $125,000 if you've lived in your home for less than two years.
If the president signs the new law, it won't take effect for six months. Experts are predicting that during that time, personal bankruptcy filings will increase as consumers panic and scramble to file before the stricter rules take effect.
VCs Meet in Miami
The Florida Venture Forum will hold its Florida Venture Capital Conference this month. Venture capitalists, private equity investors and investment bankers will listen to presentations from 20 to 25 businesses. The conference will be held Jan. 30-31 at the Doral Golf Resort & Spa in Miami. Gov. Jeb Bush will be the keynote speaker. To register ($459 before Jan. 9; $499 after), call 305/446-5060 or register online at www.flvencap.org.
New Help from the SBA
In November, the Small Business Administration launched a program to provide training and technical advice to businesses with fewer than six employees. The "Prime" program will give federal grants to community, regional and national groups that will in turn offer training and assistance to low-income entrepreneurs. In Florida, the three participating organizations are the Lee County Employment and Economic Development Corp. in Fort Myers, Community Investments Inc. in Pensacola and Florida Atlantic University in Boca Raton.