Mark Sonderen, President of Sonderen Packaging in Spokane, Washington, inherited his business, which now employs 148 workers, from his father. His father started the company in 1963. Because the family opted to transfer the business under the lifetime allowances, the business successfully transferred to Mark with having to incur only a small tax penalty. In the 20 years under Mark’s leadership, the business has grown four times. His son and daughter are working very hard with the hope of becoming the next generation owners. Unfortunately, Mark has to waste a lot of time, money, and resources between attorneys and insurance payments to make sure this transition successfully happens. With the projected growth of the asset value of this business in the next 10 years, Mark is very concerned about the company surviving the estate tax. According to Mark “This company has produced a lot of tax revenue for over 44 years. The death tax is like killing the goose that lays the golden egg.”
The law permanently maintains the $5 million exemption amount, indexed to inflation. As of the end of 2012, the inflation adjusted amount is $5.12 million.
Unification: The estate and gift taxes are permanently unified. This establishes a single graduated rate schedule for both the estate and gift taxes, simplifying estate planning.
Spousal portability: The law permanently allows couples to transfer any unused exemption to the surviving spouse under simplified rules.
The Kerckhoff family, owners of Rudroff Heating and A/C Inc. in Belton, Missouri, demonstrate what our members go through to prepare for the estate tax. The Kerckhoff family built their small business from the ground up over many years of sacrifice, hard work, and dedication. Renee Kerckhoff is now the primary owner of Rudroff Heating and A/C Inc. and has already started paying $15,000 to $20,000 per year in estate planning to protect her children in case something happens to her. She describes the current federal estate tax law as very unpredictable and believes that the resources to pay for estate planning could be better used on employee benefits or technology upgrades.
The Katz family has operated Denver Hardware in Denver, Colorado, for almost 70 years, employing 25 local workers. When Dan Katz’s father passed away two and half years ago, he owed the IRS more than $1 million in estate tax liabilities. Mr. Katz spent over 1,000 hours of his time complying with the tax, filling out the extensive forms, and working with his lawyer who charged him over $60,000 in fees. Mr. Katz noted that he would have liked to offer better benefits to his employees instead of paying the estate tax.
James Barnard, the owner of Barnard Manufacturing Co., in St. Johns, Michigan, employs over 100 workers and was almost wiped out by the estate tax when Mr. Barnard’s father unexpectedly passed away in the late 1990s. Most of his assets are found in the land, a factory, equipment, and some cash on hand in order to meet the payroll for the employees. After his father passed away, Mr. Barnard paid nearly $1 million in federal estate tax, not to mention thousands in attorney’s fees, accountant’s fees, and court costs. In the end, Mr. Barnard was able to keep his business in tact but found that the opportunity cost was staggering. He states that the time, money, and resources spent to pay all the fees and the death tax could have been used to expand the business and add more jobs to the community.