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ASA Rejects Grantor Trust and Valuation Rules in the Build Back Better Act

With all the attention on “Billionaire Taxes,” we at ASA are concerned that two top issues for our ASA membership, the proposed changes to grantor trust and the changes to valuation rules, might not receive the attention they deserve.  For family businesses, these two provisions have the potential to raise their estate tax levies to the point where the business can no longer survive.  To that end, we, along with several contractor associations, sent a letter to the House Ways and Means Leadership urging the rejection of the proposed changes to these rules.

Per the letter, “the changes related to the taxation of grantor trusts would eliminate the usefulness of the grantor trust for normal and legitimate business (non-tax) purposes, such as facilitating the transfer of business ownership between generations and protecting assets from liability or creditor claims of a trust beneficiary.  These new rules would unfairly punish taxpayers who relied on decades-old laws and Internal Revenue Service guidance to establish estate plans to transfer family businesses to future generations, threatening the viability of thousands of family businesses across the country.  It is simply unfair for Congress to step in and retroactively change them now, just when they are to be called upon to help with the transfer of a family business from one generation to the next.”

Additionally, per the letter, “changes related to the valuation of interests in entities holding so-called “passive assets” (including real estate) are unnecessarily overbroad.  They undermine the settled principle that property is valued for transfer tax purposes at its “fair market value” by imposing tax based on a value greater than fair market value when non-controlling or non-marketable interests are transferred.”  These changes broadly apply to all interests in any entity holding “passive assets,” whether or not the interest owner can actually access a proportionate share of those assets, whether or not the amount paid by the interest owner to acquire the interest was significantly less than a proportionate share of the assets of the entity, and whether or not the transferor or transferee have any control over the entity.  As such, the changes unfairly impose transfer taxes on “phantom assets” and “phantom value” that an owner of the interest often has no ability to access.

In summation, ASA believes that these proposed changes to the grantor trust and valuation rules are overbroad and produce unfair and unreasonable results, and we urge Congress to reject them.