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How the estate tax drives families out of business
St. Paul Pioneer Press ^ | 07/16/2009 | Eugene Sukup

Posted on 07/17/2009 8:46:02 AM PDT by rhema

The recent deaths of Farrah Fawcett, Michael Jackson, Billy Mays and Ed McMahon have many Americans thinking about mortality. If you're a business owner of a certain age, as I am, it's something you think about daily.

Unlike television personalities and performing artists, most business owners labor in relative obscurity. Our legacy, when we pass, is what we've built — and perhaps invented (in my case, agricultural equipment most Americans have never heard of) — and the hundreds and perhaps thousands of people who depend on us for jobs.

We're unlike television personalities and recording artists in another important respect as well: When we die the government may lay claim to half or more of our business.

Not directly, but through tax policy.

The main asset of recording artists is their "catalogue." The main asset of television and film stars may be residual rights to their movies or shows. The government can't grab these things because they're protected by copyright law and very difficult to value, since no hard assets are involved — such as buildings and equipment — and future value depends on future demand. As Elvis Presley Enterprises has shown, stars can be worth more after they die than while they were living. Or they might not be. Who's to know what the future will bring?

If you're the founder of a business, you do know what the future will bring: The government will require the valuation of your business after you die and will require your heirs — in nine months or less — to pay a stiff tax on the value of those assets. And you know, because you have seen it happen repeatedly to friends and acquaintances, that your heirs, to satisfy the taxman, may be forced to break up, sell or liquidate the business you painstakingly built.

The politicians call this the "estate tax" and tell us it's necessary for the public good.

As I told the Senate Finance Committee a year and a half ago, I started Sukup Manufacturing Co. in 1963 and patented my first invention more than four decades ago. Today, our company boasts more than 70 U.S. patents (for drying, handling and storing corn and other grains) and is the single largest employer in Franklin County, Iowa — a rural county 150 miles south of the Twin Cities.

Altogether, we have 350 employees at our manufacturing facility in Sheffield, Iowa, and at our distribution centers in Arkansas, Illinois, Missouri, Nebraska, Ohio and South Dakota.

My sons are both active in the business. But they know that when my wife, Mary, and I pass, the estate tax will be so severe — estimated at $15 million to $20 million at today's tax rate — the business may have to be sold.

If our employees are fortunate, a U.S. investor or competitor will buy Sukup Manufacturing and leave the company alone — to continue doing what it does very well.

But we've seen recent trends. When companies like ours are sold, they are typically purchased by overseas firms. The technology is exported to overseas factories where workers are paid a fraction of what our workers are paid. The U.S. facility is shut down. Workers get pink slips. Communities die.

If Sukup Manufacturing is fortunate enough to survive our deaths, the government will claim an additional 45 percent when our sons die (more, if Congress raises the tax rate or allows it to increase automatically to 55 percent, as it will in 2011 under current law).

And when their children die it will take another bite until the business finally collapses or some future generation says, "We've had enough."

And all for nothing. According to a recent study by economist Stephen Entin for the American Family Business Foundation, of which I am a member, the economic damage the estate tax does to businesses such as ours — and to the economy as a whole — reduces total tax revenues by more than the estate tax brings in to the Treasury.

The music of Michael Jackson will live on, like Elvis' before him. But our business may not survive our deaths.

Family businesses are the backbone of the U.S. economy, producing an estimated 60 percent of GDP. While bailing out everybody else, government does the opposite to our businesses: taxing us to death.

Eugene Sukup is chairman of Sukup Manufacturing Co., 1555 255th St., Sheffield, IA 50475.


TOPICS: Business/Economy; Editorial; Government; US: Iowa
KEYWORDS: bhotaxincrease; deathtaxes; estatetax

1 posted on 07/17/2009 8:46:02 AM PDT by rhema
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To: rhema
The power to tax is the power to destroy.

--Chief Justice John Marshall, McCulloch v. Maryland,1819

2 posted on 07/17/2009 8:55:22 AM PDT by Virginia Ridgerunner (Sarah Palin has crossed the Rubicon!)
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To: rhema

Isn’t this a reason to incorporate? Just asking.

Death tax is immoral.


3 posted on 07/17/2009 8:57:06 AM PDT by BigBobber
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To: BigBobber

It is almost certainly a privately held corporation. The assets are still held by the family. They would have to sell enough of the company to lose control — and deal with both capital gains and estate taxes.


4 posted on 07/17/2009 9:02:28 AM PDT by MediaMole
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To: rhema

I always wondered how the Indianapolis Motor Speedway got around some massive estate tax issues when Mary Hulman died, and managed to remain a closely held corporation in Hulman family. Of course, Tony Hulman wasn’t stupid and I’m sure he had the best tax attorneys in the country setting up things well in advance.


5 posted on 07/17/2009 9:05:12 AM PDT by henkster (A "Living Constitution" yields a Dead Republic)
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To: Virginia Ridgerunner

“From shirtsleeves to shirtsleeves in three generations.” Andrew Carnegie


6 posted on 07/17/2009 9:06:33 AM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: rhema

Corporate America does not want small business to thrive because it may grow to challenge them. So corporate America and their buddies in Congress will pass regs, fees and etc to save the children, climate, etc, etc to kill them off slowly. If you want to be rich and pass your finances off to your children, here is my advice. Get a technical degree and get a job with the Federal Government. Marry a Federal worker with the same pay and background. After ten years of service your salaries should be large enough that you live a lifestyle based on one of the spouses salary (the larger one) and save the entire take home pay of the other one. After thirty plus years you will have a very large savings account, plus pension. During that time buy precious metals like gold, and silver. Build up a nice amount and before you die transfer it to your kids. Tell them to adopt the same career formula and add to the cache of gold and silver they inherited. This will be the future for the middle class and upper middle class to accumulate wealth and hand it to their kids without the IRS knowing. The only time taxes become an issue is when you sell some of the bullion for cash. The sale must be declared and taxes must be paid in April as income.


7 posted on 07/17/2009 9:27:45 AM PDT by Fee (Peace, prosperity, jobs and common sense)
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To: rhema

For all you entrepenuers out there with young businesses. If you think your kids have their heads on straight, you should gift a big chunk of your stock to them while it is still relatively worthless.


8 posted on 07/17/2009 9:31:16 AM PDT by Oldhunk
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To: rhema

The case of the owner of the Miami Dolphins is classic in this. I believe he was Joe Robbe (sp?). When he died, he left the team to his family. When the tax man got through with them, they had to sell the team in order to pay the taxes.


9 posted on 07/17/2009 9:34:15 AM PDT by Texas resident ( Boys and Girls, it's us against them.)
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To: rhema

What is truly brutal about the estate tax is you are often taxed at 40-50 percent to earn money and then when you die the estate tax can take 55 percent of what is left.


10 posted on 07/17/2009 9:40:23 AM PDT by staytrue
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To: rhema

Tin foil hat alert! I noticed when the Steelers won the title this year that the owner thanked 0bama. The NFL prevents ownership of a team by a corporation. The Packers are exempted because they were already a corporation when the rule went into place. Because ownership is by individuals, there’s a significant problem upon the death of the primary owner because the estate tax is so high that paying it frequently requires the inheriting owner to sell it to get enough money to pay the taxes. The primary value of an NFL franchise is usually not the facilities or tangible items. It’s the license to have an NFL franchise. The Steelers may be worth 800 million dollars, but the value of the team is not readily available cash. To get the cash you’d have to sell the team. Wonder if 0bama promised a little something to major league sports to get around this problem.


11 posted on 07/17/2009 9:41:16 AM PDT by Richard Kimball (We're all criminals. They just haven't figured out what some of us have done yet.)
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To: rhema

This is why a big life insurance policy placed in an Irrevocable Life Insurance Trust (ILIT) is so important to a family business.

The untaxed insurance proceeds are there to pay the estate taxes, allowing the business to stay in the family.

That’s how Forbes did it, farmers do it, it’s simple enough that nearly anyone can do it.


12 posted on 07/17/2009 9:46:38 AM PDT by Balding_Eagle (Overproduction, one of the top five worries for the American farmer.)
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To: rhema

It’s my understanding this is how Warren Buffet made a lot of his money - vulturing up distressed companies after the original owner died and the estate had to come up with the cash to pay off the IRS.


13 posted on 07/17/2009 10:28:00 AM PDT by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: rhema; P-Marlowe

Wow! What a story.

That is the best explanation of what happens that I’ve ever read.

That guy should be a conservative commercial.


14 posted on 07/17/2009 10:40:57 AM PDT by xzins (Chaplain Says: Jesus befriends all who ask Him for help.)
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To: rhema

This tax has done more than anything else to destroy family farms and ranches, who are often land rich but cash poor.


15 posted on 07/17/2009 1:21:12 PM PDT by Red Boots
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To: Fee

I once worked in a state job.....for only 6 months.

It was by far the most deliberately (by the bosses) UNPRODUCTIVE job I have ever been paid to do. We literally worked 5-7 work days a month doing the paperwork we were processing and sat at our desks and read or even knitted ( I made socks for hunting) on the rest of the month’s workdays, Mon-Fri.

I did this for 6 months and was almost out of my skull with boredom and anger combined. I actually worked with women who had been there for over 20 years, and said it had always been the same.

It was a personal exposure to the waste built into all levels of government. I was pretty young at the time, and I am sure it helped form my current feelings about any part of government.

I don’t think anything in Kalifornia is any different from my experience over 40 years ago. I would recommend firing everyone and re-processing them to be re-hired, with the target of hiring less than 50% of them in the future.


16 posted on 07/17/2009 1:52:38 PM PDT by ridesthemiles
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To: Balding_Eagle

This is why a big life insurance policy placed in an Irrevocable Life Insurance Trust (ILIT) is so important to a family business.

The untaxed insurance proceeds are there to pay the estate taxes, allowing the business to stay in the family.

That’s how Forbes did it, farmers do it, it’s simple enough that nearly anyone can do it.”

What kind of annual premiums do these policies cost??


17 posted on 07/17/2009 1:54:07 PM PDT by ridesthemiles
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To: Texas resident
When the tax man got through with them, they had to sell the team in order to pay the taxes.

The liberal responses to your post are, "This is a problem, why?" and they cheer because the estate tax ensures some silver-spooned winners of life's lottery are only half as rich as they would have been, the other half having been returned to its "rightful owners" via government entitlement programs for The Poor.

After all, everyone knows ALL the rich business-owner m______f______s make their fortunes on the backs of the little people. /s

18 posted on 07/17/2009 2:54:33 PM PDT by newgeezer (It is [the people's] right and duty to be at all times armed. --Thomas Jefferson)
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To: ridesthemiles

These are ordinary life insurance polices, so they don’t cost any more than a policy normally would.

The key is that they are owned by the ILIT, taking them out of reach of the taxman. This requires an attorney to draft the ILIT, and the insurance company will often provide a draft document for his review.

Because of the onerous estate tax rates, this can make the difference between a family business struggling through a generation change, or one that can continue on. The estate tax impact depends on a number of financial factors.

Disclaimer; I am a life insurance salesman. I am not trying to solicit business. However, if you want to Freepmail me, and give me ages etc. I can give you a general idea of what it might cost and help you get pointed in the right direction.


19 posted on 07/17/2009 3:09:22 PM PDT by Balding_Eagle (Overproduction, one of the top five worries for the American farmer.)
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To: rhema

Boy, am I embarrassed; I read all the way through the article mentally pronouncing the name of the company, suck-up, thinking it referred to the drying grains process only to see it was the guy’s surname.

Now I don’t know how to pronounce it.


20 posted on 07/17/2009 3:21:10 PM PDT by Old Professer (The critic writes with rapier pen, dips it twice, then writes again.)
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To: ridesthemiles

I should add something.

Not always, but typically, the estate tax for family businesses isn’t due until the second spouse passes away. Then the estate has 9 months (again typically) to come up with the needed cash.

The insurance companies have a ‘second to die’ policy which pays the death benefit upon the second spouses death, which is exactly when the cash is needed.

The benefit of a second to die policy is that if one of the spouses has a medical problem (say Dad has a heart murmur or worse) that would make him ineligible for a single policy, he can be underwritten for a second to die policy. And often at nearly the same premium as if he had no problems.

In any event the premiums covering two lives, but only paying when the second person dies are generally much less than two separate policies.


21 posted on 07/17/2009 3:45:23 PM PDT by Balding_Eagle (Overproduction, one of the top five worries for the American farmer.)
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To: Old Professer

Sue Cup.

They used to be the weird company on the block with new and different methods of drying.

Now they are a very respected company, field tested and proven.


22 posted on 07/17/2009 3:48:03 PM PDT by Balding_Eagle (Overproduction, one of the top five worries for the American farmer.)
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To: rhema
Big, publicly traded corporations get to buy up family businesses because of the estate tax. And they probably get better deals than if the heirs were not under under the gun.

For pretty much everything evil the government does, there is a big business that has found a way to benefit from it.

23 posted on 07/17/2009 5:10:37 PM PDT by Montfort
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To: newgeezer

Except for rich libs. I’d bet the kennedy’s don’t have to pay estate taxes.


24 posted on 07/18/2009 6:17:16 AM PDT by Texas resident ( Boys and Girls, it's us against them.)
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To: DuncanWaring; Balding_Eagle
This is why a big life insurance policy placed in an Irrevocable Life Insurance Trust (ILIT) is so important to a family business.

It’s my understanding this is how Warren Buffet made a lot of his money - vulturing up distressed companies after the original owner died and the estate had to come up with the cash to pay off the IRS.

As I understand it Buffet works both ends of this deal. Does the "Oracle of Omaha" own Mutual of Omaha, or is it another insurance company? Regardless, he sells the insurance and then cherry picks the best companies being sold to pay the taxes.

He has the audacity to say the rich like him pay too little in taxes, and then encourages others to buy life insurance because it is tax free, and he is also in favor of keeping the estate tax so that good companies can be bought on the cheap.

He is a typical Democrat hypocrite and liar.

25 posted on 07/19/2009 7:55:33 AM PDT by Mind-numbed Robot (Not all that needs to be done needs to be done by the government)
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