Rules proposed for valuation discounts would hit wealthy clients hard.
Proposed U.S. Treasury regulations unveiled August 2 aim to quash the valuation discounts that estate planners have used for decades to cut affluent clients’ estate, gift and generation-skipping transfer taxes.
“This is the biggest single event in the estate planning world probably since the 1980s. The paradigm shift is enormous,” CPA Robert Keebler, a partner at Keebler & Associates in Green Bay., Wisc., told practitioners in a teleconference August 8. “The vast majority of the discounts we’ve come to expect are gone” under the proposed regulations, he said. Adoption of the new rules could occur by early next year.
“I think most estate planners were expecting the Treasury to take away the discounts for non-operating businesses like family-owned marketable-securities entities, but taking away most discounts for actual operating businesses is shocking,” teleconference co-host Steven J. Oshins, a Las Vegas estate planning attorney, told Private Wealth afterward. “Clients will need very particular fact-patterns to get discounts.”
Clients affected by the proposed changes include those whose entire estate tax bill could be eliminated by discounts, according to fee-only planner Gary Pittsford, president and CEO of Castle Wealth Advisors in Indianapolis. Given the current exemption from death tax of $10.9 million for a married couple, “A married client whose net worth is $14 million may want to do some gifting now rather than waiting one or two years,” said Pittsford, who has already alerted his clients about the proposed changes.
Indeed, acting now to take advantage of the current rules is the call-to-arms. “Whether it’s a grantor retained annuity trust the client has yet to finalize or an installment sale to an income tax defective dynasty trust, advisors should be encouraging clients to finish their transactions before the end of the year,” said Oshins.
On December 1, Treasury officials will convene a public hearing on the proposed regulations in Washington, D.C. Most of whatever is adopted will become effective upon its publication, which observers anticipate happening by January.
“We will have to change the way we do advanced estate planning, but the world will not be over,” Oshins said.
