The Importance of Separating Family Wealth from the Family Business.

Too many closely held businesses retain and accumulate assets far beyond the reasonable needs of the business. Not only does this expose the assets to a much greater degree of business risks, it also complicates business succession planning and estate tax planning. This article reviews the problems and risks presented by excess accumulation of wealth in a closely held business including an analysis of the limitations of creditor protection benefits provided by corporations. The case is made that numerous business and personal planning objectives can be more easily met if wealth is routinely and systematically withdrawn from the business. Further, a thorough analysis of the provisions of the Internal Revenue Code that are specifically designed to discourage excess accumulations of wealth in the closely held business are presented. The tax implications and characterization of withdrawals of wealth are also be examined. The article concludes with an examination of specific techniques that can be used to keep the value of the family business commensurate with its business needs and how this can facilitate estate planning and equalization issues. [ABSTRACT FROM AUTHOR]