ALERT: Owners of Family Businesses and Real Estate Need to Act Now
If you (or your parents) own a business that you (or they) intend to pass to the next generation, you need to seriously consider whether your business succession plan needs to be completed before the end of 2016. This applies to both active businesses as well as passive investments such as investment real property.
On August 2nd, the IRS proposed new regulations that would effectively eliminate the use of minority or lack of control discounts for family controlled businesses for gift and estate tax planning. This removes one of the most powerful and effective tools used by estate planning and tax professionals to reduce or eliminate the taxes involved in transferring such businesses to the next generation. These regulations could become effective the beginning of 2017. If the value of your business or investment properties exceeds, or eventually might exceed, the current federal estate and gift tax exemption of $5.4 million (this number could be reduced to $3.5M or even less based on Hillary Clinton’s proposal), you should contact us immediately. The time to act is now.
Through the use of discounting in succession planning, we are able to significantly reduce the value of your company or assets when listing them on your estate or gift tax return. These discounts are based on the well-recognized concept that a minority interest in a company which lacks the voting power to control the company is worth less than a controlling interest in that company. For example, a business that is worth $10 million might be listed on the estate or gift tax return as worth only $6.5 million by applying these principles. As you can imagine, this can literally result in hundreds of thousands (or even millions) of dollars in tax savings when it comes time for your family to settle up with the IRS on your estate tax bill!
This technique is currently perfectly legal and available to family business owners, but not for long. The IRS has fought the use of such discounts in the courts for years and has routinely lost. Over the years this technique has become one of the most commonly used tools for reducing the tax on family businesses. Now the IRS is seeking to do away with this technique by implementing regulations that prohibit its use with family owned businesses.
If you think your family might benefit from such planning, contact us right away for a FREE consultation. Call (480) 344-4999 or email Attorney Mike Ferrin directly at firstname.lastname@example.org
Your family will thank you!