On March 25, 2021, Senators Bernie Sanders and Sheldon Whitehouse formally proposed a bill, known as the 99.5% Act. The proposed bill rolls back many of the cuts included in the 2017 Tax Cuts and Jobs Act. Some of the more impactful changes for many families include:
- A reduction of the gift tax exemption to $1.0 million per person. This means that individuals cannot gift more than $1.0 million without paying a gift tax.
- A reduction of the estate tax exemption to $3.5 million per person from the current $11.7 million exemption. The good news is that the decline of the estate tax exemption would not occur until 2022.
- An increase in the estate tax rate to 45%, once a deceased person’s taxable estate exceeds $3.5 million. The tax rate will increase to 50% and higher when the amount subject to tax exceeds $10 million.
The bill also proposes to eliminate some of the primary tools we have successfully used in the past:
- Valuation discounts for non-business assets, such as family-owned LLCs funded with investment assets.
- Discounts for lack of control and marketability when the family of the transferor and transferee have control of the entity or own the majority of the ownership interests.
These changes will begin immediately when President Biden signs the bill into law. Given the likelihood of significant increases in the estate tax, even if a watered-down version of the bill is ultimately passed, now is the optimal time to consider estate planning strategies. Valuation support from a credible and independent valuation firm like Acuity Advisors is a critical component of this strategy.
Accountants, attorneys, and tax advisors commonly refer their clients to Acuity Advisors for compliance with the Internal Revenue Code for gifting as well as estate tax reporting purposes because we have highly experienced professionals who value:
- Business enterprises
- Interests in FLP’s, LLC’s, and LP’s
- All forms of equity-based compensation (including stock options, SAR’s, and restricted stock)
- Various forms of debt and debt-like instruments
- Tangible and intangible assets
Our discount studies consider multiple valuation methods to determine the difference in value between control and minority interests, as well as discounts for lack of marketability. Our methods include benchmarking, option pricing model, restricted stock studies, and reviews of relevant court cases.
Delivering competent, well-supported valuation opinions while minimizing IRS scrutiny is our top priority. Our valuation opinions comply with revenue ruling 59-60, and individuals at Acuity Advisors meet the IRS standards of a “Qualified Appraiser.”
If you are interested in learning more about how an experienced valuation advisor can help you navigate these critical and complex issues, we would love to hear from you. Contact Chris Kramer at [email protected] | (714) 380-3300 or Mike Perez at [email protected] | (714) 380-3304.