December 17, 2017

December 15, 2017

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Proposed New IRS Rules for Valuing Interest in Family-Controlled Entities May Curb Discounts For Estate, Gift and Generation-Skipping Tax Purposes

On August 2, 2016, the US Department of the Treasury issued long-awaited, proposed regulations on the valuation of interests in family-controlled entities for estate, gift and generation-skipping tax purposes. If finalized, these new rules are likely to substantially increase estate taxes payable by the estates of owners of family-controlled businesses, farms, real estate companies and investment companies. They would overturn well-settled law that for decades has allowed valuation discounts to be applied to these interests. Estate planners have long relied on the current rules in minimizing the transfer tax cost of passing family-controlled entities from one generation to the next.

The new rules are in proposed form and are not effective until issued in final form. This will probably not occur until sometime next year at the earliest. Proposed regulations often are changed, sometimes materially, before they are finalized. And sometimes they are not finalized quickly or at all. As a result, no one can be certain of the final form that these rules will take or when they will become effective, if at all.

That said, for some of you this may be an opportunity to plan your estate under current law for at least a few more months. We recommend that you discuss with your estate planner whether you should consider further steps now in light of these possible rule changes. If you have transactions in process, you may want to consider accelerating their completion. At a minimum, this possible law change may act as a prompt for families to have needed—perhaps long overdue—tax, succession and estate planning discussions with their professional advisers.

© 2017 McDermott Will & Emery

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About this Author

Partner

Richard A. Lang is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Dick joined McDermott after 20 years at another major law firm, where he headed the estate planning practice.

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Richard L. Dees, Tax Attorney, McDermott Will and Emery Law FIrm
Partner

Richard L. Dees is a partner in the Private Client Group of McDermott, Will & Emery's Chicago office.  He specializes in advising owners of privately and publicly held companies and wealthy families on control, tax and business planning issues.  He is nationally known for his experience in using partnerships to save estate and income taxes. 

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Carlyn S. McCaffrey, private client, tax attorney with McDermott Will law firm
Partner

Carlyn S. McCaffrey is a partner in the law firm of McDermott Will & Emery LLP and is co-head of the private client practice in the Firm’s New York office.  She focuses her practice on domestic and international tax and estate planning for high net worth individuals.  She also advises individuals and institutions on charitable planning matters.

Carlyn has been widely recognized as a leading lawyer in her field.  Since 2006, Chambers USA has ranked her a “Star” lawyer for business and wealth management, with the most recent edition...

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