“The IRS is pursing all manner of estate planning transactions involving family-controlled entities (“FCEs”) and now has gone straight to the heart of the matter – valuation.

“Unfortunately, for many years, the industry has used the misnomer “valuation discount” when discussing fair market valuations of speculative, illiquid, or unmarketable assets based on long-standing valuation principles. Now, the IRS has issued proposed regulations designed to eliminate these so-called valuation discounts for intra-family transfers of interests in FCEs, effectively prohibiting the use of traditional valuation standards in these transactions. These proposed regulations disregard any restriction on an owner’s ability to liquidate an interest in a FCE for transfer tax valuation purposes. As the proposed regulations will not take effect until December 2016, at the earliest, however, there may still be some opportunities for transfer planning with FCEs.

“Given the potential for issuance of final regulations by year-end, individuals already engaged in transfer planning with FCEs should complete the process promptly, while those seeking to rely on existing laws should plan now.  While the new transfer tax valuation standards for FCEs will change the economics of many traditional legacy planning approaches, those approaches remain viable and will continue to play a significant role in family wealth succession. Life insurance also will play an ever-more important part in legacy planning in the post-regulation world.”

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