Important Information Regarding Estate Planning

Important Information Regarding Estate Planning

By Debbie Haines, Partner

If you are considering gifting interests in your closely held business to get it out of your estate, be aware that the door may soon be closing on the ability to discount the value of a gifted interest. The IRS has issued proposed regulations that are aimed at closing loopholes that taxpayers have used to avoid gift taxes by valuing transfers of an interest in a family business to a family member by discounting for the fact that the interest transferred has little or no voting rights or control over the family business. Additionally, there is a provision that treats the lapse of certain rights in a family business as a transfer to family members.

The availability of obtaining a valuation discount on gifts of non-controlling interests that do not have liquidation rights will be significantly curtailed under new proposed IRS regulations under sections 2701 and 2704. The amendments to regulation § 25.2701-2 are proposed to be effective on and after the date the regulations are finalized. (The proposed regulation is § 25.2701-8(b).) The amendments to regulation § 25.2704-1 and regulation § 25.2704-2 are proposed to apply to lapses of rights, where the right was created after October 8, 1990, and the lapse occurred on or after the date the regulations are finalized.

A public hearing is scheduled for December 1, 2016. The regulations will likely be finalized sometime in 2017.