When Georgia business owners prepare their estate plans, they must decide how to transfer shares of their companies to beneficiaries. Transferring non-liquid assets like business interests could be more difficult and expensive now that new regulations have been proposed. On Aug. 2, it was announced that the Internal Revenue Service and the Treasury Department would be placing limits on an estate planning technique that is commonly used by wealthy business owners.
The new regulations are targeting an estate planning technique that is often used by families that own closely-held businesses and real estate. By lowering the value of fractional interests, business owners are able to transfer wealth to family members without going over the lifetime exclusion for estate and gift tax.
The assistant secretary for tax policy said that the practice of devaluating fractional interests allows families to avoid paying estate and gift taxes for assets that they should pay taxes on. He said that the new regulations would limit use of this estate planning technique. Valuation discounts may now become harder to claim because the IRS will change its restrictions on liquidating business interests.
A person who owns an estate that may be affected by the new regulations may want to meet with an estate planning attorney to discuss other tax saving strategies. Depending on the details of a person’s estate, an attorney may recommend one or more kinds of trusts to hold assets. An attorney may also recommend a lifetime gifting strategy to lower the value of an estate during a person’s lifetime without incurring a gift tax.