Article on Planning with Undivided Interests in Real Estate

Lance S. Hall recently published an Article entitled, Planning with Undivided Interests: Rights and Restrictions and How They Affect Traditional Discounts, Tr. & Est. 60 (Feb. 2017). Provided below is an abstract of the Article:

While the jury is still out on how President Donald J. Trump’s administration will approach the estate tax and how it will address the estate-planning community’s concerns regarding the interpretation of the proposed changes to Internal Revenue Code Section 2704 (proposed regs), estate planners are left to ponder what planning techniques may still be available if the proposed regs are finalized. If the proposed regs are interpreted to reduce or eliminate discounts for lack of control and lack of marketability for real estate holding entities, one avenue of planning may be the use of undivided interests in real estate. In states where community property laws are in place, real property is automatically divided between spouses as undivided interests. As a result, some discount planning is already taking place. 

Let’s explore the rights and restrictions of an undivided interest holder (UIH) and how they may impact the magnitude of the traditional discounts for lack of control and lack of marketability. Given the evolving Internal Revenue Service and courts’ positions on undivided interest discounts, I’ll also provide a brief history of undivided interest discounts, as well as the current position of both the IRS and the courts.