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Proposed IRS changes could impact estate planning

In early August, the Internal Revenue Service released proposed regulations that could have a major impact on the estate plans of many Philadelphia residents. The proposed changes would serve to limit the benefit of certain discounts that are made available through the transfer of interests in certain family-controlled businesses between family members. If the regulations are finalized, many families will need to take a different estate planning approach.

Currently, family members are able to enjoy a number of valuation discounts when transferring interest in a family-controlled business from one person to another. The value of the interests is calculated differently because the recipient will have limited control over the business. The value is also lowered due to the assumption that there is a limited market for selling shares that are limited in nature.

These discounts mean that the value of transferred shares are far lower than they would be if they were traded on the open market instead of being transferred between members of a family. That results in savings on estate taxes and gift taxes. If the newly proposed regulations come into play, those discounts would be significantly limited.

It may take years for the matter to be settled, as many experts expect heavy opposition to the proposed regulations. However, Philadelphia families who currently make use of this estate planning approach would be remiss to ignore the issue. Meeting with an estate planning attorney is the best way to ensure that a family has taken every possible step to reduce taxes and pass the most wealth possible from one generation to the next.   

Source: The National Law Review, "Transferring the Family Business Is About to Get More Costly", Gregg M. Simon, Gregory B. Mann and Kevin M. Noonan, Aug. 11, 2016

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