The Window May Be Closing for Estate and Gift Planning Opportunities

Estate planners have been urging clients for years to complete their estate and gift planning before the anticipated rule change. Now, with the IRS issuing proposed regulations and a number of estate and gift tax changes being proposed in the 2017 fiscal year budget proposal, timely planning is even more critical.

The IRS has just released proposed regulations that, if made final, will significantly impact the valuation of business entities for estate, gift, and generation-skipping transfer tax purposes. The regulations are open to a 90 day public comment period and they are expected to be finalized shortly thereafter.

Historically, taxpayers have been allowed to discount the value of minority interests in closely-held businesses and real estate, and many of these agreements are often executed just prior to death. Currently, estate and gift taxes apply when the valuation exceeds $5.45 million per person and are subject to a top federal rate of 40 percent.

The proposed regulations would eliminate the current discounts, making it significantly more expensive for taxpayers to do their transition planning. The new regulations may also pose a major problem for family-held businesses looking to transition ownership to the next generation.

Parts of the proposed regulations are effective 30 days after they become final so if you have not already consulted with your advisors regarding estate planning, now is the time to do so.

President Obama’s 2016 budget also proposes many changes to estate and gift taxes. Below are some of the highlights:

  • Decrease the exemption amounts for estate and generation-skipping transfer taxes (GST) by approximately $2 million.
  • Decrease the lifetime gift tax exemption by approximately $4.5 million, to $1 million.
  • Increase the top gift, estate, and GST tax to 45 percent (from 40 percent).
  • Limit the minimum term of a grantor retained annuity trust (GRAT) to 10 years and a maximum term equal to the life expectancy of the annuitant plus ten years.
  • Any decrease in the annuity during the term of the GRAT and tax-free exchanges of assets held in the GRAT would be prohibited.
  • Limit the time that multi-generational, dynasty trusts would remain GST and estate tax free to 90 years.
  • A new category of annual gifts would be created and the annual limit would be increased to $50,000 per donor. The definition of “gifts” would also be expanded.

We are pretty confident that all of the proposals will not pass, but some will eventually make it to law. If you have contemplated establishing a GRAT or a gifting strategy, then now is the time to act. If you already have an estate plan, consider having it reviewed to determine what impact these proposed changes may have.


David Shaffer, Kreischer MillerDavid E. Shaffer is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email



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