Tax-Related Estate Planning Strategy May Be Put To An End

There are a wide range of things a person may want to gift to a loved one during their lifetime or upon their death. One thing it can be important to think about when it comes to such gifts is tax implications. Tax issues that can arise in relation to how one specifically gives lifetime or after-death gifts to a loved one include estate tax issues and gift tax issues.

One of the goals estate planning can be directed towards is minimizing the tax consequences of gifts. There are a variety of estate planning strategies that can be used for furthering this goal.

One of these strategies may soon be taken off the table by the Treasury Department and the Internal Revenue Service. The strategy in question involves putting a securities portfolio or a business one has into a limited partnership, and then giving limited interests in the partnership to desired beneficiaries. Under current tax law, these limited interests can qualify for discounted levels of valuation when it comes to tax matters. Under the current state of tax law, this strategy can sometimes lead to a reduction in estate tax and gift tax liability.

However, the Treasury Department and the IRS are purportedly considering proposing restrictions for valuation discounts for such arrangements, particularly those in which securities portfolios are put into a limited partnership. Such restrictions, if ultimately put in place, could perhaps severely weaken the ability of such arrangements to be used as a tax reduction strategy in an estate plan. It will be interesting to see what the Treasury Department and the IRS do ultimately end up doing when it comes to this matter.

Now, if this particular estate planning strategy does get weakened by government actions, this does not mean people will have no options for trying to reduce the potential tax consequences of lifetime and after-death gifts in their estate plan. There are other strategies out there, such as trust-related strategies, that may be able to help with tax-related estate planning goals. Attorneys can help individuals understand what tax consequences lifetime and after-death gifts they are considering giving could have and what options are available for trying to reduce potential negative tax consequences of such gifts.

Source: The Wall Street Journal, "IRS Takes Aim at an Estate-Planning Strategy," Liz Moyer, June 26, 2015

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