Proposed Regulations Restrict Estate and Gift Planning Techniques Utilizing Valuation Discounts

Proposed Regulations Restrict Estate and Gift Planning Techniques Utilizing Valuation Discounts

The Treasury Department recently issued proposed regulations that restrict or eliminate many of the valuation discounts currently being used to lower the value of interests in corporations or partnerships for estate and gift tax purposes.  The Treasury Department will hold a public hearing on December 1, 2016 and the regulations will become effective after they are finalized.

These regulations will affect many of the planning techniques that have been utilized for a number of years, including GRATs (Grantor Retained Annuity Trust) and sales to Intentionally Defective Grantor Trusts.  The value of transferred interests in family partnerships, LLCs or corporations have been discounted because of certain lapsing rights and restrictions upon liquidation, as well as other restrictions in the governing documents, which have increased the ability to transfer greater amounts of wealth with reduced transfer tax effect.

Although some of the provisions may be modified as a result of the hearing and commentary before becoming final, it may be appropriate in some situations to take action before the proposed regulations become final for taxpayers currently considering discount valuation transfer techniques.  For those who are already utilizing these techniques, it may be advisable to accelerate some of the planned transfers to be effective prior to the regulations becoming final.

WMS Partners is closely monitoring the progress of the proposed regulations and analyzing their effects and will be available to advise you on your particular situation.

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