Passing on the Family Business Under the Restrictive Estate Freeze Rules

The Revenue Act of 1987 and the Technical and Miscellaneous Revenue Act of 1988 have effectively eliminated the preferred stock recapitalization and other estate freeze techniques. Instead of helping small businesses and individual tax payers by simplifying the tax structure and lowering tax rates, it has become impossible for many small business people to pass on the family business because of prohibitively high estate tax rates, encouraging owners to sell to outsiders, and forcing heirs to sell the family business to raise funds to pay the estate tax. This article examines these provisions and suggests some planning opportunities for small business owners.