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Summary of Planning Action Steps

Begun in 2003, Treasury took 13 years to draft these regulations, yet several material uncertainties exist. Until clarified, protect clients conservatively by:

Completing contemplated and partial prior transfers.

Modifying entity structure to mandate supermajority to force liquidation. Thus, when the client transfers ownership, she already wouldn’t have liquidation authority and ergo be outside the scope of the estate inclusion deemed lapse. Warning: applicable restrictions in pre-October 8, 1990 agreements may be grandfathered.

Implementing tax apportionment clauses because the risk of unfairness due to increased transfer tax values has increased. Consider whether to apportion estate taxes to the recipients of the assets rather than the residue, or use “net-net” gifts.

Using “self-adjusting” transactions to avoid a disruption to the estate plan from enhanced value, including GRATs and defined value clauses.

Source: Section 2704 Proposed Regs: Action Steps for High Net Worth Families Despite the Confusion