On Aug. 4, the Treasury Department issued proposed regulations (the regulations) that restrict or eliminate valuation discounts for family-owned businesses under Internal Revenue Code Section 2704. The regulations will be the subject of a public hearing on Dec. 1, 2016 and will become effective 30 days after publication as final regulations. While many commentators hope that at least some of the harsh provisions in the regulations will be modified before becoming final, can clients afford that risk? For many family business owners, the potential loss of discounts could prove devastating to estate planning (although some commentators have suggested otherwise). For situations in which discounts could be critical, or even important, practitioners should guide clients in evaluating implementing planning prior to the effective date of the regulations. One likely planning technique to be considered for those client situations that might benefit from advance planning is a grantor retained annuity trust (GRAT). But should a GRAT be applied in the traditional manner, or might variations be preferable in light of the GRAT environment?
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David R. Duringer, JD, LL.M, is a concealed firearm instructor and tax lawyer specializing in business and estate planning; licensed to practice law in the states of California and Washington. He is managing shareholder at Protective Law Corporation, serving Southern California from its Laguna Hills (Orange County) headquarters and satellite offices in San Diego County (Coronado and Carlsbad).
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