Possible Regulatory Changes to Impact Estate and Gift Tax Planning

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Estate and gift tax planning strategies often involve freezing the value of what the senior family own and deflecting increases in value to younger generations. Potential regulatory changes could take effect as early as before the end of 2015 that would eliminate one of the most common methods used to accomplish this.

The creation of a family controlled entity is a frequently used strategy in estate and gift tax planning. These entities are often partnerships, often referred to as a family limited partnership (FLP) or a family limited liability company.

Internal Revenue Code Section 2704 was made effective in October 1990 to restrict the ability of reducing taxes through these freezes of value. More recently, there have been indications that the Treasury plans to issue new regulations that would further restrict these options.

While operating companies could be exempted from these new regulations, it appears that holding entities like an FLP would not be exempt. A potential result of these changes is that property could be worth more at death without discounts.

What this means for families interested in multi-generational estate and gift tax planning is that it could be important to explore options in the near future if discounts could be an important factor.

While an effective date of any of these regulatory changes is not known, transfers made prior to the effective date will likely be grandfathered from new rules.

For questions on this article or to explore estate and gift tax planning strategies for your family, contact Deana Love, Private Client Services Practice Leader for Daszkal Bolton, at [email protected].

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