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Valuation Discounts Proposed Regulations

VIEW PLANNING UPDATE (PDF)

SUMMARY

Valuation discounts are regularly applied by appraisers when valuing family business interests transferred in connection with wealth transfer planning, often citing factors such as lack of marketability and lack of control. On August 2, 2016, the U.S. Department of the Treasury issued regulations aimed at curbing the use of discounts when valuing family business interests. While these regulations have been anticipated for some time, the breadth of these proposed regulations could be troubling, particularly since they appear to apply to transfers of family-controlled, operating businesses as well as entities that hold only passive investment assets.

In this Wealth Planning Update, we include possible impacts of the proposed regulations and planning considerations for clients.

KEY TAKEAWAYS

While we do not know what will be included in the final regulations, you should consider the following:

  • The current proposed regulations would disregard most, if not all, restrictions used to support valuation discounts for transfers of interests in family entities.
  • If you are considering forming a family entity and/or plan on transferring interests in a new or existing entity, you should meet with your legal counsel soon to determine the best approach.
  • Given the significant impact of these proposals, if your family has an operating family business, it is strongly recommended that you meet with your legal counsel as soon as possible to discuss how the proposals may impact your unique situation.