A bill currently under consideration in the Pennsylvania Senate seeks to protect family farms from having to pay state inheritance taxes under a measure that would ensure the Department of Revenue consistently applies a specific tax exemption to families who use family trusts or family corporations to manage their estate planning and ownership interests.
The measure is a clarification of a law passed back in 2012 which sought to address a common problem for family farms: sometimes heirs have to sell off the farm against their wishes in order to pay for inheritance taxes. After the 2012 law was passed, the exemption was not applied consistently to families who had property in family trusts or family corporations, but the proposal seeks to change that.
The prospect of forced liquidation of assets is one that can occur not only for family businesses, but whenever an estate has significant liabilities and insufficient liquidity to handle those liabilities. One of the tasks of effective estate planning, especially for family businesses, is to make sure there is enough liquidity to pay off debts and other expenses so that heirs are not forced to sell off the business or other valuable possessions.
There are a variety of ways to create liquidity. One of them is to use life insurance policies. Life insurance is a rather flexible financial product and offers some unique benefits, though it isn’t the only possible avenue for creating liquidity.
When going through the process of estate planning, of course, it is important to work not only with an experienced attorney in handling the legal aspects of the process, but also a financial professional for guidance on the financial aspects.