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Discounts for Transfer of Stakes in Family Firms Are Likely to See Upcoming Limitations

Currently, when an interest in a closely held business is transferred to a family member, the donor can claim significant valuation discounts for lack of marketability and control, which substantially reduces the gift tax cost.  The transferred interest is also out of the donor’s estate, lowering the estate tax bill. 

New regulations to limit discounts are expected to be coming shortly, most likely for transfers of interest in family companies that hold only securities.  But family firms that operate businesses may also be subject to discount restrictions.  It appears likely that the rules will be prospective and not retroactive, so if you are considering a transfer of a stake in a closely held company to a relative it may behoove you to act sooner and talk with your financial advisors before the new restrictions take effect. 

Kiplinger Tax Letter 8-2015
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