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Broad changes proposed to close estate tax loophole

On Behalf of | Dec 19, 2016 | Estate Taxes

Heirs to family businesses in Georgia may soon be facing a steeper tax burden. The practice of discounting estates for the purpose of reducing the estate tax burden has come under fire with proposed Treasury Department regulations. The 2704 regs, as the rules changes have been dubbed, were questioned at a public meeting with the Department of Tax Policy head. Estate discounts have been on the Treasury’s chopping block for years, according to one author. Family business owners and tax attorneys were among the challengers of the rule changes.

Estate planning goes beyond simple dividing assets among the heirs; also needing to be taken into consideration is the tax burden each heir will face. With a business valued in the millions, such a tax burden can be large. Additionally, the heir may not actually be receiving the ability to turn the received assets into cash or control it to any degree. These assets are discounted traditionally to reflect the level of control the beneficiary has over the assets. In the past, this has created a loophole for trusts that primarily hold securities and have no business component.

One participant in the meeting claimed the regulations attacking this loophole ‘use a shot gun approach when a rifle approach is more in order.” Several people pointed to legitimate use of discount rules, such as protection of new business owners from an overwhelming estate tax bill.

Succession planning for a family business requires complex decisions at every level, from consideration of the interests and interpersonal skills of heirs to ensuring estate tax burdens do not hobble the next generation’s stakeholders. With unpredictable rule changes and an ever-increasing amount of regulations, Georgia business owners can be overwhelmed with the nuts and bolts of succession planning. An attorney with experience handling estate taxes could help make this goal more attainable.