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Publications | June 23, 2015
2 minute read

Consider a “bird in the hand” approach for transferring business interests to family now rather than later

The U.S. Treasury appears poised to implement changes to Internal Revenue Code Section 2704 that could potentially eliminate or reduce valuation discounts for the transfer of family-owned businesses, including family limited partnerships and family LLCs. The prospect of disappearing discounts should be carefully considered by anyone contemplating a transfer of business interests to a family member, as timing of the transfer could mean everything. If a transfer of business interests to a family member is in your future, completing the transfer now and taking advantage of the existing discounts could be the surest solution. Following is a quick Q&A about the possible changes, implications and options.

What is the value of the discounts?
Under current law, discounts on the valuation of closely held business interests for the purpose of gift and estate tax transfers typically range from 25 to 50 percent.

When are changes expected and when might they go into effect?
The Office of Tax Policy of the U.S. Treasury Department indicated that proposed regulations can be expected by this fall (September), but changes could take place earlier or later. The effective date is typically when final regulations are issued, but there have been instances where the effective date is retroactive to issuance of the proposed regulations. 

What are your options?
Completing the transfer of business interests before proposed regulations are issued will allow you to enjoy discounts available under current law.  Waiting until after the proposed regulations are issued may cause you to lose out on discounts. Your first step should be to consult with a Trusts & Estates attorney to assess your estate and financial planning situation and goals.

Are “safe harbors” an option?
Safe harbors may avoid application of Section 2704 and allow discounts to be taken in identified instances, but it is uncertain whether safe harbor options will be included in the new regulations.

If you have any questions regarding transfers of family owned business interests, please contact any member of our Trusts & Estates Group.