Why is the early payment of estate taxes mentioned in relation to closely held businesses?

The early payment of estate taxes is particularly relevant for closely held businesses because such entities often face significant liquidity issues upon the owner's death. When a business owner passes away, their estate can incur substantial estate tax liabilities based on the value of the assets, which may include the closely held business itself. If these taxes are due but the estate lacks sufficient liquid assets to cover them, the heirs might need to sell off portions of the business or other assets to pay the taxes, which could disrupt the business operations and diminish its overall value.

By making early payments of estate taxes, or by implementing strategies that allow for the deferral of tax payments while maintaining liquidity, the business can continue to operate without undue financial strain. Planning for these taxes ensures that the business remains intact and can maintain its value and operational capacity during the transition period. Thus, early payment helps to mitigate potential cash flow problems that could arise from the tax obligations tied to the closely held business.