Orange County Business Journal

Time is Running Out

Nothing in life gives Charlie more pleasure than spending time with his family.  With five grown daughters and eleven beautiful grandchildren, his mission to be their life-long provider is his singular goal.

The source of Charlie’s legacy – a successful sun shade manufacturing business – will finance his family’s needs for generations.  He credits the success of his business to his ability to hunt for bargains, leaving no stone unturned.  Armed with solid plans for business succession, Charlie thinks he has it “made in the shade,” as his business motto proclaims.

But Charlie left one stone unturned.  His estate lawyer has been recommending the immediate transfer of his business into a dynasty trust while the law still permits him to value the transfer at substantially discounted rates.  By doing so, Charlie’s business will continue to appreciate in value outside of his taxable estate and avoid death taxes for up to 365 years.  If Charlie instead maintains status quo and waits to pass his business to his heirs without a dynasty trust, the current estate tax on the value of his business at death would result in a 40% tax liability. Because his business is illiquid and the tax is due within 9 months of Charlie’s death, his heirs will probably be forced to sell assets (at deep discounts) in order to pay up.  That would be a colossal waste.

Advances in estate planning have produced certain popular vehicles like Family Limited Partnerships (FLPs), Family Limited Liability Companies (FLLCs), and flexible dynasty trusts –  among others – to allow Charlie to continue to control the business he worked so hard to build while shifting future value out of his taxable estate to save on death taxes.  These vehicles also provide the added tax benefit of producing significant valuation discounts which can be as high as 25-45% or more, depending upon the types of assets and the terms of the operating agreement.

Unfortunately, all good things must end, and if the IRS has its way, this opportunity is no exception.

New proposed regulations from the IRS are designed to end these popular and commonly used discounting strategies.  While current law allows taxpayers to transfer their wealth held in entities such as LP’s, LLCs, and corporations at discounts from 25% to 45% or more, these new regulations, expected to go into effect once they become finalized as soon as Q1 of 2017, will eliminate the strategy.  The proposed regulations are complex requiring the IRS to fix them delaying the final regulations going into effect until early next year. Once the time period for the public to comment ends, resulting in modifications, the new regulations will become final and these beneficial planning strategies will be gone forever.

Please contact Kathryn Weber, at to schedule a telephone consultation to discuss how these changes might impact you and your family.

This could be your last opportunity to capture the advantages of discount planning, so like Charlie, you too can be “made in the shade.” Act now — time is of the essence!

Posted in Client Alert, Orange County Business Journal.