Masonry Magazine August 1979 Page. 13
MONEY-SAVING IDEAS FOR MASON CONTRACTORS
What You as a Mason Contractor
Should Know About Estate Planning
By JEFFREY B. KELVIN, J.D.
Advanced Sales Consultant
Life Insurance Company of North America
Despite the sweeping changes of the Tax Reform Act of 1976, protecting your estate from excessive federal estate taxation remains a complicated process. This is especially true for the specialty contractor who does business as a closely-held corporation, be it with co-shareholders or as a sole stock owner.
If you are interested in controlling exactly what will happen to your business after you die and if you wish to insure that your heirs benefit as fully as possible from the disbursement of your estate, then you owe it to yourself and to your heirs to map out a comprehensive estate planning program. Your attorney, CPA and life underwriter will work as a team in this effort.
Planning for the disposition of his estate is usually far down on the list of priorities for a busy business man, especially for someone in the mason contracting business. Most of your attention must be devoted to balance sheets, work in progress and the day-to-day running of your business. But when you consider the fact that many closely-held corporations are forced into liquidation to pay estate taxes and the fact that often survivors must go through the heartbreak and expense of lengthy litigation because the deceased failed to provide for proper valuation of his closely-held business, can you afford to ignore estate planning?
About the Author
Jeffrey B. Kelvin is advanced sales consultant for the Insurance Company of North America (INA) in Philadelphia. Prior to joining INA, he was a judicial clerk to the Hon. Jay H. Eiseman, Common Pleas Court in Philadelphia, and associate counsel for Maaco Enterprises, Inc. Mr. Kelvin received B.A. and J.D. degrees from Temple University in Philadelphia. He was admitted to the Pennsylvania Bar in 1973 and is a member of the American, Pennsylvania and Philadelphia Bar Associations.
Your Estate May Be Larger Than You Think
I am often confronted by people in the contracting business who tell me that they don't really have an estate planning problem because their estate is not that large. This is often not the case because they have failed to realize that the approaches and techniques used to value an individual's net worth during his lifetime are an entirely different concept than the valuation of his estate for federal estate tax purposes.
The reason for this is simple. The Internal Revenue Code governs what types of property are going to be included in the individual's gross estate, and unfortunately the code does not always follow logical sequences in terms of what property is included in an estate.
For example, anytime an individual transfers property out of his estate such that at the date of death he has no equitable or legal interest in that property, it might be logical to conclude that the property interest has successfully been "alienated" or transferred out of the estate. A person not familiar with this area might believe that to the extent that this property has been transferred it should not be subject to federal estate taxation. Logically this makes sense. But historically the Treasury Department has lost great sums of revenue because people traitsferred property with the motive of reducing estate tax.
Consideration of Lifetime Motivations
The Internal Revenue Code which provided that anytime property was transferred within three years of death, there was a presumption raised that this had been done to avoid estate taxation. The taxpayer had the opportunity to prove that this transfer had not been made in "contemplation of death" but was genuinely made out of lifetime motivations. The burden of proof was on the taxpayer, but at least the taxpayer had an opportunity to assert lifetime motivations. Today, with the Tax Reform Act of 1976 that opportunity no longer exists. We now have what is known as a "conclusive presumption." In short, all property transferred within three years of death is automatically included in the estate.
I think it's clear that there's a potential problem here because a lot of business people have transferred property out of their estates, giving it to children or other relatives in an effort to reduce the size of their estates. This, of course, would include making a son or a relative a co-shareholder, in a sense giving him part of the business. The father wants to reduce the size of his estate and gradually ease his son into the business. So he gives various por-
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