Proposed 2014 Budget Affects Estate Planning

The Obama Administration has released its proposed budget for fiscal year 2014, which included several proposals affecting estate planning.  The administration has proposed returning the estate, gift, and generation-skipping exemptions and rates to the pre-2009 levels.  This, however, is not planned to take effect until the fiscal year 2018 or later.

Another potential change could take effect much sooner.  This change is not described in the 2014 Budget, but drawn from reading between the lines on what was absent from the budget.  Experts are speculating there may be impending changes regarding valuation discounts.

For the first time since 2003, the administration provided no proposal to disregarded valuation discounts applicable to certain restrictions on transfers of interest in family controlled entities.  The IRS has maintained that Chapter 14 of the Internal Revenue Code was intended to limit the estate planning techniques, such as valuation discounts, designed to reduce transfer tax values.  The regulations to enforce these restrictions could be issued at any time and would most likely be effective on the date of publication.  The elimination of family valuation discounts would impact many conventional planning techniques.  These discounts (i.e. Lack of Marketability, Lack of Minority Interest, and Lack of Control) often range from 30% to 40% which constitute substantial gift or estate tax savings.

If you’re considering gifts of business interests, contact your Anders advisor to start your estate planning today.