Traditionally, families have relied on valuation discounts when transferring interests in closely-held family businesses to the next generations. Transfers of minority interests in a closely-held family entity were generally allowed a minority discount when valuing interests for estate and gift and tax purposes, primarily due to the inability of a minority shareholder to compel a liquidation of the entity. These discounts often proved to be a helpful way for the family to avoid the need to sell the family business to pay estate taxes, by reducing the gift and estate tax burden on such transfers. The proposed regulations effectively eliminate any minority discounts and largely any marketability discounts on the valuations for estate and gift tax purposes. If these regulations are finalized, they would impact transfers between family members of interests in family-controlled corporations, partnerships, LLCs and other business entities, regardless of whether the business is active or passive.
No two families are exactly alike, but all family members share common opportunities and challenges as they seek to take care of each other and leave a lasting legacy the next generation can build on. In this blog, the experienced attorneys in Nutter's Trusts and Estates and Nonprofit and Social Impact Advisors groups offer news and insights for individuals, couples and multi-generational families who are looking to convey wealth (and its responsibilities) to children and grandchildren, make a philanthropic impact in the community and prepare for the life events we all can face.