Pennsylvania has just created a new tax break for transfers of businesses to certain family members. This new inheritance tax law applies to estates of some one who dies on or after July 1, 2013.
To qualify for this Qualified Family Owned Business exemption under new Section 9111(t), the following criteria must be met:
engaged in a trade or business;
This tax break is not available to entities with a principal purpose of “management of investments or income producing assets” held by such entity. Section 9111(t)(5). The principal purpose of an entity cannot be simply managing its own investments.
A cursory look at the new law appears to show that transfers to trusts would not be eligible for exemption. Those attempting to do estate planning where they own an active business in Pennsylvania may have a very difficult choice to make. They can either give the business outright to children to save inheritance taxes or they must give up this exemption if family issues, financial reasons or federal estate tax considerations dictate the use of trusts. For more insights into these estate planning implications please read Estate Planning 2013: Now What? A Must Read For Everyone.
Since this law is so new and some of its terms may not be fully understood or defined, more guidance will probably be forthcoming from the Pennsylvania Department of Revenue. Stay tuned.
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