The new administration in Washington, supported by Republican majorities in Congress, has pledged substantial changes to federal tax laws and regulations. One change may - or may not - be the complete elimination of federal estate and generation-skipping transfer tax. Until the fate of gift, estate and generation-skipping transfer tax is resolved, individuals and families who are affected by such transfer taxes may need to plan in the alternative: that is, plan for our current estate tax regime and plan as if the current system were repealed. Planning for repeal is difficult. It remains unclear whether our current system will be replaced by some other revenue-raising measure (requiring alternative income tax planning, for example), or, if there is repeal, whether it will “sunset” (as happened with “repeal” for one year only in 2010). Relatively few Americans are affected by our current estate tax because it applies, at a 40% rate, only to individuals transferring more than $5.49 million and to married couples transferring twice that amount, or $10.98 million. For owners of closely-held businesses who are exposed gift, estate and generation-skipping transfer tax, there currently is some incentive to proceed with transfers of minority interests in the family business because discounts for lack of marketability and for minority interests should apply when valuing any gift. Last year, the IRS proposed regulations under Section 2704 of the Internal Revenue Code to eliminate such discounts on intra-family transfers, but the Trump administration’s moratorium on the implementation of new federal regulations means that valuation discounts should remain available at this time.
For more information, please contact Henry Grix in the Troy, Michigan office at (248) 433-7548.