May 2015

May 2015

Estate and Succession Planning With S Corporations

Estate, business and succession planning changed dramatically with the enactment of the American Taxpayer Relief Act (ATRA) in early 2013.  Now, with a federal estate tax exemption set at $5.43 million for death in 2015 and a “coupled” gift tax exemption of the same amount, very few estates will be subject to the federal estate tax.  That doesn’t mean that state death taxes can be ignored.  In the states that impose taxes at death, the exemption levels are typically much lower than the federal exemption level.  Also, farmland values have increased significantly in recent years, virtually matching (in percentage terms) the percentage increase in the federal estate tax exemption.  So, for larger agricultural estates, the increase in the exemption is basically worth about the same as it was several years ago.   

The goal of most individuals and families is to minimize the impact of the federal estate tax at death.  But, with the exemption at $5.43 million for 2015 deaths and “portability” of the amount of any unused exclusion at the death of the first spouse for use by the surviving spouse, the estate tax is not an issue except for very few estates.  That means that, for most families, it is an acceptable strategy to cause assets to be included in the decedent’s estate at death to get a basis “step-up.”  Thus, succession plans that have been in existence for a while should be re-examined. 

Buy-out agreement.  For family businesses involving an S corporation, some sort of shareholder buy-out agreement is a practical necessity.  Over time, however, if that agreement is not revisited and modified, the value stated may no longer reflect reality.  In fact, it may have been established when the estate tax was projected to be more of a potential burden than it is now.  The ATRA changes in the federal estate tax may be one reason, by themselves, to take another look at that agreement. 

Consider Not Making Gifts of Business Interests.  Historically, transition planning has, at least in part, involved the parents’ generation gifting business interests to the next generation of the family interested in operating the business.  However, there might be a better option to consider.  It may be a more beneficial strategy to have the next generation of operators start their own businesses and ultimately blend the parents’ business into that of the next generation.  Not only does this approach eliminate potential legal liabilities that might be associated with the parents’ business, it also avoids gift tax complications. Read more.

EPA and Army Corps Unveil Final Clean Water Rule

The EPA and Army Corps unveiled their long-awaited final Clean Water Rule on May 27, 2015. The proposed rule had been pending for more than a year. The final rule, which faced severe opposition in its proposed form, retains most of its original provisions. It does, however, incorporate a number of changes in response to the more than one million comments received.

The final rule identifies eight categories of “jurisdictional waters.” These are waters over which EPA and the Army Corps could exercise Clean Water Act jurisdiction. These categories include: (1)Traditional navigable waters, (2) Interstate waters, (3) Territorial seas, (4) Impoundments of jurisdictional waters, (5) Tributaries, (6) Adjacent Waters, (7) Specific Waters Subject to Case Specific Significant Nexus Analysis, and (8) Other Waters Subject to Case-Specific Significant Nexus Determinations.

Traditional Navigable Waters, Interstate Waters, Territorial Seas, and Impoundments of Jurisdictional Waters

The final rule does not alter the agencies’ treatment of traditional navigable waters, interstate waters, territorial seas, or impoundments of jurisdictional waters. Coverage of these waters has not changed from that announced in the proposed rule. These are the traditional waters widely agreed to be protected by the Clean Water Act  


The “tributaries” category was among the most controversial of the proposed rule’s categories of jurisdictional waters. For the first time the agencies sought to define the word “tributary,” and the proposed definition met with great opposition. The proposed rule broadly defined tributaries to include natural or man-made waters, wetlands, lakes, ponds, canals, streams, and ditches if they contribute flow directly or indirectly to interstate waters. The proposed rule had no requirement that the waterways continuously exist or have any nexus to traditional “waters of the United States,” as has traditionally been required. Read more.


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