After much anticipation, the Internal Revenue Service (the
“IRS”) issued proposed regulations on August 2, 2016,
limiting the ability to take valuation discounts in connection with
certain intra-family asset transfers.
Prior to the proposed regulations, the ability to take valuation
discounts for purposes of gift or estate tax calculations was one
of the most powerful tools in an estate planner’s toolbox.
Two of the most common discounts were for lack of control and lack
of marketability. It was not uncommon for these discounts (in the
aggregate) to range from 30% to 50%, the impact of which is
illustrated by the following example:
In 2014, Dad created a limited liability company (the
“LLC”) and contributed $6 million of real estate and
marketable securities to the LLC. In 2015, the LLC was appraised
and, due to certain restrictions, the appraiser determined that it
was appropriate to apply a 40% discount to a gift of a minority
interest in the LLC. Dad then made a
