For family businesses in Pennsylvania, the state’s Inheritance Tax has long caused significant distress among those planning to transfer their business to the next generation. With rates of up to 15%, the tax can spell ruin for many family businesses when the owner passes away. In order to help family businesses survive, the Pennsylvania legislature recently provided some welcome relief from the tax for certain “qualified family-owned businesses” (QFOBs). Business attorneys in Philadelphia and throughout the state should take notice to provide immediate assistance for their clients going through
Not all family businesses will benefit from the change. The exemption applies only to businesses that:
- Have less than 50,000 full-time employees;
- Have a book value of less than $5 million; and
- Have been in existence for at least five years.
Additionally, the business must be transferred to certain family members, who must continue to own the business for seven years following the death of the owner.
While the exemption is narrowly drawn, it provides a new and helpful tool for many families planning for the transition of their businesses to the next generation.
If you own a family business, be sure to consult your estate planning lawyer to see if you can benefit from the new law. If you haven’t enacted an adequate plan, the sooner you do so, the better. If you own a business, it is critical to have a plan in place to either allow the business to transition to other family members or preserve the value of the business until it can be sold to a third party.
For more information on business succession planning, and to see if your family can benefit from the new law, contact our offices for a complementary consultation.