Andy Hart, a managing partner at Delegate Advisors, highlights a couple of current tax-related proposals in the US which, if passed, could significantly impact wealthy families when it comes to estate planning, among other changes affecting fund managers.

First of all, proposed US Treasury regulations are expected to have a significant impact on the minority interest discounts – which can be as much as 30 to 40 per cent – that families have been able to achieve in the sale of family holding companies, partnerships or corporations, Hart said.

Currently, if an individual has an interest in a company, or shares in a partnership that they don't control, and cannot sell or monetize, families have been able to take substantial discounts on selling those assets to the next generation. Such wealth transfer techniques have been used for decades, Hart said, but the US Treasury is this year proposing regulations to substantially limit, and potentially eliminate, discounts on these types of assets. Early commentators speculated that such regulations may have no effect on operating companies held inside or outside of family holding companies.

“That's the biggest proposal that will change the estate planning landscape this year,” he said. “Right now, estate tax attorneys are still utilizing these strategies, but it is hard for them to make a suggestion about alternative techniques without seeing the language in the new regulations.”

Meanwhile, a couple of other proposals in President Obama's 2016 budget are also potential areas of concern for wealthy families. Currently, private equity and hedge fund managers are taxed on their carried interest (additional earnings on returns they provide investors) at the capital gains rate, which is 20 per cent, versus the ordinary income tax rate, which is 39.6 per cent for the highest brackets.

“There is once again a proposal to tax the carry at ordinary rates, a change that would directly and greatly affect the tax bills of hedge fund and private equity managers – some of the wealthiest earners in the US,” Hart said.

Another “great concern” is the new proposal to impose a 28 per cent capital gains tax on appreciated assets upon gift or bequest at death, which Hart said is “brand new territory.” At the moment, when someone dies their assets are subject to the estate tax, but the tax basis for the assets for income tax purposes is adjusted to reflect the fair market value of the asset. “But this new tax would result in the imposition of both income taxes (capital gains) and estate taxes on all appreciated assets – a massive new tax,” Hart said.

He explained: “Say you bought a house for $100,000 and now, 50 years later, it is worth towards $10 million. Currently, you can pass that house on with no capital gains tax on that enormous gain.  The current proposal is that the government will impose a new 28 per cent capital gains tax (or higher) on the asset, so you'd pay both the capital gains tax and the estate tax – effectively double taxing estate assets. This would cause a tremendous change in the way that we look at families' estates and how to plan around that. Generally, wealthy individuals are counseled to hold until death assets that are highly appreciated to secure the step-up in basis.”

Hart noted that given the current make-up of Congress, most attorneys Delegate Advisors talks to don't believe that much of what Obama wants to change will be enacted into law. “However, there are some key areas of concern that if the complexion of Congress changed materially, some of this might come to the fore, so this is something we watch all the time,” he said.