Businesses change in value, however, especially during a recession. For example, say the company is paying buy/sell insurance on a 60-year-old co-owner for a $20,000 annual premium. If the business is worth less, then the payoff amount that the policy covers needs to be reduced in order to save cash. As the business recovers in value, insurance has to be adjusted again and also going forward, depending on the health of the partners.
If you are a likely beneficiary of someone who owns a business, you should never rely on an inheritance. So much can happen or go wrong. The business value will rise and fall with economic tides. What you want to do is work together to determine what ownership should be transferred, using the methods described above, including trusts and partnerships. These entities allow a business owner to maintain control of the asset while transferring some ownership.
Starting a Business
Recessions take so much away, but they also give, many times in the form of a laid-off employee starting his or her own business. Supposing you follow your passion and decide you want to use your 401(k) or pension money to fund it? This needs to be analyzed closely, because if you're paying more in tax penalties, it won't be worth raiding your retirement fund.
If you are just coming off a good year of income, you'll pay tax on redeeming your retirement at a higher rate than if you wait a year or two and base it on income that may potentially be lower due to the change in career or situation. Consider finding another way to fund the business, including friends and family loans or investments, or government program loans such as the SBA.
Regardless of where you currently are on the wealth scale or how deeply the recession affected you, the important thing to understand is that you have options when it comes to estate planning and the transfer of assets. Take your time to evaluate all your options, but don't let the tax rates of 2012 slip away before you've had a chance to do so.
Mira Finé, CPA, is the national director of tax operations
for Hein & Associates LLP, a public accounting and advisory
firm with offices in Denver, Houston, Dallas and Orange County.