IRS could take away key estate planning tactic
Partnerships and LLCs allow families to pass on assets such as minority shares in a family business to heirs in a tax-efficient way. It’s a popular estate planning tactic because the transfer of assets deemed illiquid receive a discount on the value of the asset. Here’s how this works. You have a family business and decide to pass on a minority share of the business to a daughter. The current IRS rules allow you to discount the shares up to 35 percent, so instead of passing on $6.25 million, you pass on shares valued at $4.6 million, essentially making the transfer of those shares tax-free since the transfer is below the current $5.43 million gift-tax exemption. Originally created to prevent the family of a minority shareholder from having to sell for a bad deal in order to pay a tax bill, estate planners have seized on it as a method to transfer assets that while technically in compliance violated the spirit of the law.
The Treasury Department has strongly suggested that by September, or possibly sooner, new rules will be put in place to close that option. This is all still conjecture since the Treasury has wanted to change the rules before but had to back down. Still many wealth managers are advising clients to act now.
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