According to the regulations.gov post “Estate, Gift, and Generation-skipping Transfer Taxes: Restrictions on Liquidation of an Interest,” the Treasury Department and the IRS have proposed regulations that would amend §?25.2701-2 to address what constitutes control of an LLC or other entity or arrangement that isn’t a corporation, partnership or limited partnership.
These regs would amend §?25.2704-1 to address deathbed transfers that result in the lapse of a liquidation right and to clarify the treatment of a transfer that results in the creation of an assignee interest. The changes would refine the definition of “applicable restriction.” It eliminates the comparison to the liquidation limitations of state law. It would also add a new section to address restrictions on the liquidation of an individual interest in an entity and the effect of insubstantial interests held by persons who are not members of the family.
If and when finalized, the proposed regulations would do the following:
If these end up being the final regulations, taxpayers will lose an important estate planning technique, and the tax cost of transferring interests in family-owned entities will increase.
Reference: regulations.gov (August 4, 2016) “Estate, Gift, and Generation-skipping Transfer Taxes: Restrictions on Liquidation of an Interest”
Kimberly Hegwood is the Managing Attorney of Your Legacy Legal Care, a Houston estate planning law firm. With more than 25 years of experience practicing law in Texas, she represents clients in a wide range of legal matters, including elder law, asset protection, estate planning, Medicaid crisis planning, probate, guardianship, and other estate planning practice areas.
Kimberly received her Juris Doctor from the South Texas College of Law and is a member of the State Bar of Texas.
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