The IRS has recently released proposed changes to restrict high net worth families’ from implementing clever estate planning techniques to secure valuable tax discounts by transferring assets via bequests to heirs. The current IRS regulations are targeted towards to the use of family limited partnerships (FLPs) or family LLCs, and abuse of exceptions applying to the lapse of restriction or liquidation rights of deathbed transfers.
Another category on which the IRS focused its efforts is “disregarded restrictions.” Currently, there are some effectively illusory restrictions, which, if the family maintains control, disregard certain restrictions that would normally trigger a valuation discount. The proposed changes create a new, broadened group of “disregarded restrictions,” and effectively eliminate many of the valuation discounts for any transfer subject to one of these categories of “disregarded restrictions.”
Ultimately, these new restrictions will require the advisors of high net worth families to equip themselves with more innovative estate planning solutions to help their clients adjust and prepare the most valuable estate plan.