Money Matters

It’s All About Timing for Discounting Gifts or Bequests

22 Sep 2016 by: jhurley 

For years, IRS and the U.S. Treasury have tried to curb the use of favorable valuation discounts on gifts of bequests.  After years of failure, Treasury has decided to go forward with its own proposed expansive regulations in updates to Treasury Regulations, section 25.2704.

The overarching theme of these regulations is to severely limit the use of valuation discounts for any type of Family Limited Partnership or other family business transfer in which the family will retain control before and after the gifting or bequest event.

For taxpayers who are over the estate tax thresholds, ($5.45 million individually or $10.9 million as a couple of combined assets) paying attention to these new rules is crucial.

Once the public comment period ends (from November 2, 2016 to December 1, 2016), IRS and Treasury will consider comments before formulating final regulations. Once the regulations are issued, the changes would take effect 30 days after being entered into the Federal Register.

Therefore, time is of the essence if taxpayers are considering intra-family transfers.  Business valuations and real estate appraisal will be required in order to determine the value of a proposed gift reflecting discounts for lack of marketability and lack of control.  Therefore, business valuation experts and real estate appraisers will be very busy.

If you are intending to make gifts of real estate or business interests to lower your estate tax exposure, time is of the essence!

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