Holding assets in a family-controlled entity can have significant benefits including creditor protection, centralized management of assets, and economies of scale. Moreover, when closely-held business interests are transferred to family members, discounts for lack of marketability and control can substantially reduce the value of the transferred interest for gift and estate tax purposes.
The Treasury Department recently published new proposed regulations (2704(b) regulations) which, if adopted in their current form, would substantially curtail a taxpayer’s ability to claim a valuation discount for gifts and bequests of interests in family-controlled entities to family members. Concerned clients may wish to complete contemplated transactions involving transfers of interests in family-controlled entities to avoid application of the new rules. Others may wish to take a wait and see approach. The Treasury has invited public comment on the regulations and it is not certain in what form the regulations will be adopted, or if such regulations will be adopted at all, particularly given the election of Donald J. Trump as our 45th President. For more information, consult your legal and tax advisors.