Do you own a family business or farm?
Then you may be impacted by a recent IRS decision to do away with a key discount used to lower the amount of taxes owed from the owner’s estate after he or she passes away. Please read on.
What is changing?
A proposed IRS ruling is slated to take effect at the end of the year that would strip family owned businesses of the ability utilize “valuation discounts” that ultimately lower the amount of taxes that must be paid for estate and gift tax purposes.
The proposed regulations under Section 2704 of the Internal Revenue Code are expected to be adopted as final no later than January 2017. At that time, valuation discounts on transfers of interests in closely-held family business entitles such as Family Limited Partnerships and Corporations would be significantly reduced or eliminated.
This essentially means that a huge window of opportunity is quickly closing for owners of family businesses to utilize estate tax reduction strategies. Why leave your family with a massive tax bill when there is still time left to minimize what’s eventually owed, or do away with an estate tax bill all together?
Time is of the essence to take action and plan ahead!
How to Take Advantage of This Important Discount
We currently help clients take advantage of valuation discounts using one of two legal entities: either a Family Living Partnership or a Wyoming LLC.
We work with our clients to transfer the assets of their business into one of these corporate entities. The beauty of these entities is that the documents for them contain very specific restrictions on ownership and the transfer of ownership of the units in the entity.
It’s gets a little technical from here, but basically because the entities have specific restrictions on transferability and marketability, we are able to get a “valuation” for the business that is less than the value of the assets inside of the entity.
A Practical Example
A good example would be a client that has a family-owned shopping center worth $1 Million dollars. When we strategically place the assets inside of a Wyoming LLC or Partnership, we can then have the LLC or Partnership valued by business valuator, and because of all the restrictions of the entity, the assets typically come back discounted by about 20%.
So for tax purposes only, that means assets that were worth $1,000,000, are now only worth $800,000 because they are contained within these special entities.
The value of this type of planning is that we can easily help clients bring their asset values below the estate tax exemption, which ultimately will save their family hundreds of thousands, of not millions of dollars, when the owner passes away.
Act Now: Window of Opportunity Closing to Take Advantage of Tax Savings!
Unfortunately, this opportunity to save significantly on estate taxes is going away. Anyone that has assets near or over the current estate tax threshold that also owns a family business must meet with their planning professionals as soon as possible to take advantage of the discounts available to them. Business valuation and entity creation takes some time, so business owners must act soon to ensure that everything is taken care of before the end of the year.
What You Should Do Next
If you own a family business or farm, you must contact our office as soon as possible! If not acted upon immediately, there is a possibility that appraisals and business valuations will NOT be completed before the law changes and you will lose the ability to take advantage of these key tax savings.
The time to get help is NOW.
To schedule an appointment, simply call our office at (912) 352- 3999 and mention this article to come in at no charge.