Significant Changes for Family Gifts
On August 4, the Treasury Department issued proposed regulations under Internal Revenue Code Section 2704 that, if enacted, would significantly limit the applicability of valuation discounts to certain intra-family transfers.
Gift and Estate Tax Implications
In many cases, this limitation would prevent individuals from discounting the value of gifts of real property or business interests made to the individuals’ family members, causing the individual to use more of his or her gift tax exemption amount when making lifetime gifts.
Likewise, the proposed regulations would significantly limit the use of valuation discounts when calculating the size of the gross estate of a decedent, thereby increasing the value of the estate for estate tax purposes and the amount of estate tax payable.
Public Hearing in December
The public hearing on the proposed regulations will not be held until December 1, 2016, and thus the regulations will not become final this year. Although we believe it is unlikely that the regulations will become final in their present form, we do expect that regulations limiting the availability of valuation discounts for certain intra-family transfers will become final – probably in 2017.
Explore Gifts in 2016 vs. 2017
For that reason, if you are considering making a gift of an interest in real property or a business, we suggest that you at least explore the option of doing so in 2016, rather than waiting until 2017 when the tax results may be less favorable to you.