Protecting Family Businesses: The Importance of Tax-Deferred Assets in Inheritance Planning

Inheritances can put an entire company in financial distress. What can entrepreneurs do to avoid this danger? According to experts, one key lies in tax-deferred assets.

OAlthough inheritance tax is a private matter for the business family, it can pose a major risk for the entire company. Jan Roth, lawyer and partner at the Wellensiek law firm in Frankfurt, explains why. “Anyone who inherits a company or shares in it generally has to pay inheritance tax immediately, even if neither they nor the company have enough liquid assets to do so,” says Roth.

The sudden lack of money can lead to heirs forcing the liquidation of business assets, so that the company then has to sell a factory site, for example. This may help the heirs out of trouble in the short term, but in the long term it reduces the company’s scope and thus the value of the inherited assets. Since a large number of German companies will have to regulate succession in the near future, this is not just about individual cases.