Significant Changes in Store for Common Gifting Strategy

October 17, 2016 • Boyce Law Firm, LLP

Significant Changes in Store for Common Gifting Strategy

Some family business owners and farmers may soon face a new set of regulations.  The new regs aim to close what many commentators have considered to be a loop hole in federal tax law.  If you plan to gift ownership interests in your business or farmland to the next generation, you’ll want to keep reading.

The Treasury has issued Proposed Regulations under Code Section 2704 which may reduce or eliminate valuation discounts.  Minority discounts and reductions for lack of marketability may be things of the past once the regulations become final.  It is a wealth transfer strategy that has been utilized for many years, and one that the IRS has never liked.  Finally the Treasury is tackling an issue that has been on its hit list for years.  But we are still in the dark.  Neither the effective date nor the final content of the regulations has been announced, although those in the industry expect something to come out in December.

What does this mean to you?  Keep in mind that the Federal Estate Tax only applies to a taxpayer with an estate worth over $5,450,000 per individual ($10,900,000 per couple).  It is those individuals and families facing possible estate tax who typically take advantage of valuation discounts.  Therefore, the impact of the new 2704 regulations will not affect the large majority of Americans.  Still, for those with taxable estates who have established a gifting plan involving the transfer of shares of the family business or farm at a discounted rate, it will greatly impact the usefulness of this estate planning tool and the speed at which generational transfers can be made without incurring tax. In any case, it appears that the regulations will be prospective only and have no impact on gifts made prior to the effective date of the final regulations.

To find out how the proposed 2704 regulations may impact you, schedule a visit with Jennifer Bunkers or Corey Denevan by contacting Megan at (605) 731-0227 or