New 2704(b) Regulations Open Door to Opportunities

At long last, the U.S. Treasury Department published the highly anticipated proposed regulations under IRC Sections 2703 and 2704. These regulations target the predominant estate tax planning technique of using family limited partnerships ( FLPs) and family limited liability companies (FLLCs), among other types of family-owned enterprises, to achieve transfer tax cost reductions.  For example, a senior family member may transfer valuable assets into a family-owned enterprise to achieve a reduction in the value of his or her taxable estate at death.  In addition, or in the alternative, a senior family member may make gifts of interests in the family-owned enterprise to younger generations of family members at reduced transfer tax costs.

Loophole in Proposed Regulations

We have consistently pointed out that the U.S. Treasury Department apolices a very narrow understanding of business enterprises and their use in discount valuation planning.  While the proposed regulations try and adapt to the evolution of modern LLC law, many aspects of the proposed regulations are designed to counteract planning techniques that were novel twenty years ago but have since faded out of contemporary use.

In particular, the proposed regulations create a loophole in 2704 planning that arguably would not exist without the regulations having drawn a line in the sand to articulate the Service’s position on valuation discounts.  The planning opportunities created under the new regulations should, with time, foster a cottage industry of service providers focused on the next generation of valuation discount planning techniques.

Planning in the New 2704(b) Environment

Over a year ago, Lighthouse Trust positioned itself to assist clients and their advisors in this changing regulatory climate.  In addition to the development of our OneTrust planning technique to withstand application of the proposed 2704(b) regulations, our family enterprise management services help families achieve their estate and business succession planning objectives in both domestic and international settings.

To learn more about how Lighthouse Trust can help your family to unlock the door to new opportunities in the wake of the proposed regulations, please contact us.