Perspectives from ISB

As per a recent proposal by the US government, it would become harder for wealthy business owners to transfer assets to heirs without paying estate and gift taxes. This proposal would make it harder for taxpayers to claim valuation discounts to reflect the diminished value of minority interests. These discounts are currently permitted because some stakes are worth less since they are harder to sell or represent a minority interest. The reduced values allow wealthy families to pack assets inside the $10.9 million lifetime exclusion from estate and gift taxes for married couples.

Estate and gift taxes apply at a top rate of 40% above the $5.45 million per-person exclusion, which means the estate tax affects about 0.2% of those who die each year. In 2014, about 5,200 estates filed taxable returns, according to IRS data. In fiscal 2016, the U.S. is projected to collect $20 billion in estate and gift taxes, less than 1% of federal revenue, according to the Congressional Budget Office.

Republican presidential candidate Donald Trump wants to eliminate the estate tax. Meanwhile Democratic presidential candidate Hillary Clinton says she would make the estate tax apply to about twice as many people. She proposes returning to the law in effect in 2009, when there was an estate-tax exclusion of $3.5 million per person, a $1 million per-person gift-tax exemption and a 45% tax rate.

The government has signalled for months that the regulations were imminent. Estate planners have urged clients to complete transfers before the government acted. Such efforts may accelerate, because the regulations must first go through a 90-day, public-comment period and parts of the regulations won’t take effect until 30 days after the government issues a final version.

Source: Wall Street Journal, Aug. 8, 2016

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