These discounts include minority interest discounts on the transfer of an interest in an entity where the transferee and members of the transferee’s family have control of the entity. Currently, taxpayers have the ability to take significant discounts for lack of marketability and lack of control in connection with the transfer of non-business assets and interests in non-actively traded entities among family members. Generally, these discounts range from 25% to 45%.

HR 436 introduced to the House of Representatives by Congressman Earl Pomeroy (D-ND) would eliminate the allowance of these valuation discounts. The White House has also proposed a plan to eliminate valuation discounts. By eliminating valuation discounts there could be a potentially significant increase in the estate taxes of many larger estates, as well as bring many estates within the taxable range.

Currently, it is unclear whether any of the bills containing the termination of valuation discounts would garner enough support to pass in their current form, but there is a push by the White House and Congressional leaders to eliminate the allowance of valuation discounts. This means that it is likely we will see a version of the elimination or limitation of valuation discounts in any final estate tax reform bill that is passed by Congress. The good news is that any bill eliminating or limiting valuation discounts would probably be effective as of the enactment date. This essentially grants a grace period for transactions completed before the enactment date of any bill that is finally passed, thus allowing the taxpayer to enjoy the benefits of the discount.

(Updated December 2009)