The following report summarizes the results of a survey of small and medium companies that are members of the National Association of Manufacturers (NAM). The results were tabulated by RSM McGladrey, Inc. The survey attempts to quantify the burden of the current federal estate and gift taxes on small and medium manufacturers in terms of planning costs, lost jobs and the impact on planning and investment decisions. The NAM sent the survey to 1,800 members; the results are based on responses from 300 companies.

• Over the past five years, over 40 percent of the respondents spent a total of more than $100,000 on attorney and consultant fees; life insurance premiums; and other planning devices.

• On an annual basis, almost 60 percent of the companies spend more than $25,000 planning for the estate tax, with more than one-third spending more than $50,000 a year.

• Conversely, the companies surveyed indicated that they would lose a similar number of jobs because of the estate tax, if the present owner died.

• The estate tax could have additional negative impacts on these businesses. For almost two-thirds of the companies, if the present owner died tomorrow, plans for expansion would be delayed, substantially curtailed or abandoned.

• In nearly one-third of the cases, heirs would have to sell all or part of the business to pay the estate tax.

In May 2000, the National Association of Manufacturers sent out a survey on estate taxes to 1,800 of NAM’s small and medium manufacturers.¹  The survey results are based on responses received from 300 companies.²  The vast majority of the respondents (97 percent) are privately owned and operated family businesses. The companies are almost evenly split between companies owned for one, two or three or more generations.

As indicated in the graph below, most of the companies (78 percent) have a fair market value of $3 million or more, with 38 percent valued at more than $10,000,000. More than half of the respondents (60 percent) have 100 or fewer employees, and 30 percent employ between 100 and 500 employees.

Over the past five years, more than 40 percent of respondents spent a total of more than $100,000 on attorney and consultant fees; life insurance premiums; and other planning expenses. Almost one quarter incurred expenses totaling more than $300,000.

Based on the survey results, life insurance is the most popular planning device, with more than two-thirds (77 percent) implementing this technique. Respondents also utilize charitable trust or gifting programs (33 percent), with more than two-thirds setting up other types of trusts. A mere 6 percent of respondents do not use any planning devices.

On an annual basis, almost 60 percent of respondents spend more than $25,000 in estate tax planning, with more than one-third (34 percent) spending more than $50,000 a year.

Over the past five years, more than 40 percent of the companies have created anywhere from 20 to 100 jobs, with an additional 15 percent creating up to 500 new jobs. Respondents expect this trend to continue, with almost the same results expected over the next five years.

Similarly, respondents predicted that almost the same number of jobs would be lost, due to the imposition of the estate tax if the present owner died.

Beyond the impact on job creation, the federal estate tax would have additional significant negative impacts on survey respondents if the principal owner of the business died today. Roughly two-thirds of the companies would have to delay, substantially curtail or abandon business expansion plans; and/or have to borrow money to pay federal estate taxes. More dramatically, nearly one-third of the respondents (29 percent) said that the family would be forced to sell all or part of the business to pay the federal estate tax.

2. In some cases, percentages total more than 100 percent because respondents had the option of choosing more than one answer.

The NAM’s mission is to enhance the competitiveness of manufacturers and improve American living standards by shaping a legislative and regulatory environment conducive to U.S. economic growth, and to increase understanding among policy-makers, the media and the general public about the importance of manufacturing to America’s economic strength.