Treasury Department’s Tax Lawyer Reports: “It’s Not Over Til It’s Over…”

Dear Clients, Colleagues, and Friends,

On August 4, 2016, the IRS issued proposed regulations under IRC Sec. 2704 designed to eliminate a commonly used and effective wealth transfer strategy to produce "discounts" in value for lack of marketability and lack of control when making transfers of closely held entity interests via gift or by one's will or living trust. These discounts can range from 25% to 50% or more depending on the nature of the entity, the capital structure of the entity and the underlying assets of the entity being valued. Once the proposed regulations become final, these "discounts" for most taxpayers will be gone forever. While no one knows precisely when the proposed regulations will become final, it was expected after being posted and then time for public comment the regulations would be final by the end of 2016 or Q1 2017.

Prof. Jerry Hesch, Special Tax Counsel to the law firm and Director of the Notre Dame Tax and Estate Planning Institute, just concluded the Institute's fall tax conference and reports that one of his luncheon speakers, Cathy Hughes, a tax lawyer in the Treasury Department's Office of Tax Policy, spoke about the status of these regulations. On October 28, Ms. Hughes told her audience, "There is a zero chance of the regulations being issued in January."

This is good news for you procrastinators! Therefore, for those readers of Client Alert, there is still time to get your planning completed to take advantage of this exceptional wealth transfer opportunity before it goes away forever.

Many of our clients are capturing these discounts through our HYCET Trust® (Have Your Cake and Eat it Too), or flexible gift trust. Under conventional gift planning, a gift of assets to an irrevocable dynasty trust precludes the donor from reclaiming the transfer if he later needs or wants it back. The HYCET Trust, relying on IRS favorable Private Letter Rulings, is the trust designed for these circumstances. Established in a state that allows the trustee to later add the creator of the trust as a discretionary beneficiary, the HYCET Trust provides the platform to later reclaim the gift, providing flexibility should future circumstances change. The HYCET Trust with its flexible trust provisions will allow the taxpayer to capture the discounts on the value of the transferred assets, while retaining the flexibility of reclaiming the gifted asset -- and it is all legal. For further information on the HYCET Trust, view the short video on the HYCET Trust: click here.