Redpath Insights

Estate Planning Impacted By Proposed Regulations

by Brooke Hanssen, CPA

If you are in the midst of estate planning and are considering a transfer via gift or are in the process of completing a transfer, you should consider moving quickly to close on your transaction. Here's why:

The Treasury Department recently issued proposed regulations aimed at preventing what they consider undervaluations of transferred interests in intra-family transfers. The proposed regulations accomplish this by addressing the treatment of certain lapsing rights and restrictions on liquidations, which valuation experts would need to consider when valuing interests in closely held entities. These changes could alter your estate planning strategy related to your closely held business.

The proposed regulations, under Internal Revenue Code Section 2704 outline the rules related to how certain lapses and restrictions, within an entity, can be considered in order to determine an asset’s fair market value when the entity is controlled by members of a family. The type of lapse defined under this section generally occurs at a shareholder’s death, which impacts the value for estate tax purposes. The restrictions identified generally impact transfers during life and at death. A lapse occurs when a shareholder's right to vote and liquidate their interest dissolve. A liquidation restriction generally requires all or a majority of owners to vote to liquidate the entity. These lapses and restrictions specifically affect marketability and control (or minority) discounts that a valuation professional would take into account when valuing a business--and under the new regulations these discounts would generally be ignored.

What Can You Do About the Proposed Regulations?

The proposed regulations have left us with more questions than answers when it comes to how to plan for the future. Now is the perfect opportunity to sit down with your trusted advisors to discuss any estate planning strategies you may be considering. They will be able to assist with completing your current estate plans before the proposed regulations are finalized, address any unintended consequences the proposed regulations may cause, and present additional estate planning options that will allow you to take advantage of the proposed regulations when--and if--they become finalized.

If you have any concerns about the proposed regulations and how they might impact you, please contact:

You can also read about the proposed regulations here: https://www.regulations.gov/document?D=IRS_FRDOC_0001-1487

Brooke Hanssen, CPA

Brooke Hanssen, CPA

Brooke Hanssen is a director and service area leader in the estate, gift, and trust tax services area. She assists clients with business succession planning, wealth transfer planning—including estate, gifts, and charitable planning—estate settlement and compliance, trust accounting and administration, and audit support in the estate, gift, and trust area. Brooke also advises clients on cash flow planning for retirement and goal-based objectives. Brooke has provided public accounting services since 2007 and has been at Redpath and Company since 20