Protect the Farm - and the Manor
In an OpEd piece published in the New York Times on November 22, 2009 (“Protect the Farm, Tax the Manor”), Ray Madoff, a professor at Boston College Law School, proposes that the estate tax should be reformed to tax “heiresses” but protect family businesses, stating “Lawmakers should use the opportunity to solve the farmer/heiress riddle once and for all and move our tax system closer to the values on which the country was founded – that hard work should be rewarded and power should not be conferred by birth.”
Madoff’s piece was interesting to me on a number of levels, not least his eyebrow-raising suggestion that it would be simple to draft tax laws that could differentiate between “wealth acquired through hard work and creativity” – which in Madoff’s view should escape the estate tax – and “wealth bestowed as an accident of birth” – which in Madoff’s view should be taxed at a minimum of 55%. In Madoff’s world, ownership of a third or fourth generation business might well be considered an accident of birth, particularly since he recommends excluding only small (less successful?) businesses from the reach of the tax.
What populist fans of the estate tax often fail to recognize is that families working on business succession generally aren’t trying to producing “heiresses” either, if by that term Madoff is referring to individuals who enjoy the benefits of wealth without hard work. Most business owners seek a structure that will harness wealth for the good of the family, without creating disincentives to work. But real life is never as simple as an OpEd writer posits it to be, and Madoff blithely ignores the real problems that families face in preserving wealth for future generations. Tax planning too often drives the planning car, with family considerations relegated to the trunk. How should ownership of a family business be transferred if the founder is battling a terminal illness and the next generation isn’t old enough to take the reins yet? How should compensation and distributions be handled when one member of the next generation is running the business, while another is pursuing a career in the public sector and a third is raising children? What can be done to protect family businesses from claims of creditors – including disgruntled ex-spouses? All these fact patterns raise issues of control and management that require careful consideration if the family business is to continue to be successful in the next generation. Helping families think through the full range of difficult issues and option raised by business succession, to ensure that the family’s hard work is in fact rewarded, is our focus at Fisher Renkert LLC.
Madoff’s piece was interesting to me on a number of levels, not least his eyebrow-raising suggestion that it would be simple to draft tax laws that could differentiate between “wealth acquired through hard work and creativity” – which in Madoff’s view should escape the estate tax – and “wealth bestowed as an accident of birth” – which in Madoff’s view should be taxed at a minimum of 55%. In Madoff’s world, ownership of a third or fourth generation business might well be considered an accident of birth, particularly since he recommends excluding only small (less successful?) businesses from the reach of the tax.
What populist fans of the estate tax often fail to recognize is that families working on business succession generally aren’t trying to producing “heiresses” either, if by that term Madoff is referring to individuals who enjoy the benefits of wealth without hard work. Most business owners seek a structure that will harness wealth for the good of the family, without creating disincentives to work. But real life is never as simple as an OpEd writer posits it to be, and Madoff blithely ignores the real problems that families face in preserving wealth for future generations. Tax planning too often drives the planning car, with family considerations relegated to the trunk. How should ownership of a family business be transferred if the founder is battling a terminal illness and the next generation isn’t old enough to take the reins yet? How should compensation and distributions be handled when one member of the next generation is running the business, while another is pursuing a career in the public sector and a third is raising children? What can be done to protect family businesses from claims of creditors – including disgruntled ex-spouses? All these fact patterns raise issues of control and management that require careful consideration if the family business is to continue to be successful in the next generation. Helping families think through the full range of difficult issues and option raised by business succession, to ensure that the family’s hard work is in fact rewarded, is our focus at Fisher Renkert LLC.
posted by Amelia Renkert-Thomas at
11:45 AM
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