Do you know how estates will be taxed next year?

estate taxes

August is “Make a Will Month” and it seems like a good time to talk about your exit planning (excuse the wording) again. These topics are crucial for everyone, but they are especially important for small business owners.

This year, I need to double-down on stressing this importance because we could be in for a major change in how estates are taxed if Hillary Clinton is elected. Clinton wants to roll back estate taxation to 2009 levels – a 45 percent tax rate after a $3.5 million exemption. In 2015, the exemption was $5.43 million with a top tax rate of 40 percent.

The change would be significant and would certainly impact a lot of small business owners and their families. Because the value of businesses is not in liquid assets, paying a big estate tax bill can require selling the business. Further, with a big tax bill looming and the IRS knocking at the door, families can be forced into a “fire sale” and not be able to realize the full value of the business.

Of course, businesses can be family owned, sole proprietorships, partnerships with outsiders, LLCs, and other types of legal entities, and that means that there are a variety of strategies you can use to reduce your tax liability and other costs, such as a living trust, stock redemption plans, buy-sell agreements and more.

Finally, apart from the financial considerations, there is also the question of succession: Who will own and run your small business after you’re no longer involved? The best time to deal with succession is long before you want to leave your small business. For succession to be successful it must be planned for. If you leave it up to the last minute you won’t get maximum value out of your business. Or if you want your heirs to take it over, they may not have time to really “learn the ropes.”

Remember, you only get one shot at exiting your business, so it’s worth any extra effort in your time and the cost of a good estate planner with experience in businesses to get it right.