Valuation Discounts


VALUATION DISCOUNTS: GOING, GOING, GONE?

By: David P. Shaffer, Esq.

DISCOUNT! LIMITED TIME ONLY!  We have all seen advertisements such as these in the local supermarket or online.  We are not quite as accustomed to seeing this concept apply to U.S. Treasury regulations.

On August 4, 2016, the U.S. Treasury Department issued proposed regulations that, if finalized, will greatly limit certain estate planning strategies for family business owners.  For many years, owners of family businesses have transferred business interests to the next generation, usually in a gradual and deliberate manner.  The dual purpose of these transfers is to introduce their sons and daughters to the benefits and burdens of ownership, while simultaneously accomplishing favorable estate and gift tax treatment.  The tax efficiency stems from the ability to take discounts on the values being transferred due to lack of marketability, lack of control and/or minority discounts on the shares or units transferred.

The new regulations will not prohibit such transfers; however, they will greatly reduce the tax appeal for wealth transfer purposes by severely limiting the use of valuation discounts.  The proposed regulations are not yet finalized, however, they will become effective once that occurs.  We are in the midst of a 90 day period during which the Treasury Department is soliciting comments on the proposed regulations.  A public hearing will follow on December 1, 2016.  At that point, Treasury Department officials will review the comments and thereafter issue final regulations.  Most expect this to occur by year-end.

Given the uncertainty of when these regulations will become finalized, it is critical to act now.  In other words, if you are considering a gift or transfer of certain business interests in your LLC, partnership or corporation, you should contact your Woods Oviatt Gilman LLP attorney for assistance as soon as possible.

 

David P. Shaffer, Esq. is a Partner in the firm’s Family Wealth and Estate Planning Department.  He can be reached at 585-987-2878 or Dshaffer@woodsoviatt.com


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