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Treasury To Close Estate Tax Valuation Discounts Loophole, Family Businesses Cry Foul

Estate lawyer Carlyn McCaffrey got her first call from a frantic business owner this morning about the bomb the Treasury Department dropped yesterday, curbing valuation discounts for operating businesses–as well as family limited partnerships holding securities. “No one thought they would go as far as they did. It’s attempting to overturn some 25 years of settled law,” she says. “It can lead to unemployment, a parade of horrible you can imagine. I wouldn’t be surprised to see Trump tweeting about it.”

The proposed regulations would mean increased estate taxes on the death of owners of family businesses, possibly causing them to liquidate the business or sell big pieces to outsiders. McCaffrey’s client and his brother have been talking with her on and off this year about an intra-family sale of their New York City real estate business (apartment rentals worth north of $20 million) to their four adult children who are operating the family business now.  “He asked, ‘Should I accelerate planning?’ and I said he probably should,” she says. That way they’re selling the business at the discounted amount, maybe 35%, which makes it feasible to get it down to the next generation already operating it, rather than waiting until they die and have it taxed at the full value.


“If you have transactions in mind, do them now with the valuation discounts,” says Diana Zeydel, an estate lawyer with Greenberg Traurig in Miami. One thing is for sure. Estate lawyers will see a boost in business, like in 2012 when everyone thought the $5 million federal estate tax exemption might be ratcheted down to $1 million, and they were making big lifetime wealth transfers to heirs up to the high exemption amount.

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