Can Buy-Sell Agreements Determine Business Value for Tax Purposes? The IRS Says…
Buy-sell agreements cannot be relied on to determine the value of a business for the purposes of estate tax or gift tax.
If the IRS believes that a closely held business, or an interest in it, has a higher fair market value (FMV) than the one determined by a buy-sell agreement, it may use that higher value to determine the tax liability. This is to prevent business owners from artificially lowering the value of a company for the purpose of reducing or evading taxes.
If you’re part owner in a closely-held company – particularly a family-held company – here’s what to know.
How Buy-Sell Agreements Can Affect Sales Price and Company Value
It’s the same old story: Business owners want to protect their assets and pay as little as possible in taxes to the federal government, while the IRS wants to get all the money it’s entitled to under the law.
One way some business owners have tried to reduce the amount taxes owed to the IRS is by artificially reducing the value of a closely held company, or interest in that company, through certain provisions in the company’s buy-sell agreement.
For example, terms in a buy-sell agreement might:
- Set a fixed price for sale that’s significantly below FMV
- Set a formula to determine price that’s below FMV
- Restrict sale back to the company at a particular price
- Restrict sale to family members only, which lowers value by reducing marketability
- Give right of first refusal for purchase to existing owners at below FMV prices
When the owner eventually dies, the value of the business or business interest is reported as the value determined by the buy-sell agreement and not an objective appraiser. This may mean a lower – sometimes substantially lower – tax liability.
The IRS Will Disregard Such Terms
Terms like those above can lead to the under-valuing of a company which could mean less taxes for the IRS to collect. Under Section 2703(a) of the Internal Revenue Code (IRC), the IRS will disregard such terms in buy-sell agreements:
“(a)General rule For purposes of this subtitle, the value of any property shall be determined without regard to—
- “any option, agreement, or other right to acquire or use the property at a price less than the fair market value of the property (without regard to such option, agreement, or right), or
- “any restriction on the right to sell or use such property.”
If the IRS rejects the valuation of a business based on a buy-sell agreement, then it will use the value determined by a qualified appraiser or other method.
However, such terms are not necessarily illegitimate. The IRS will not disregard these kinds of terms if certain conditions are met.
The Three “Safe Harbor” Conditions for Buy-Sell Agreements
Exceptions to the general rule above are found in the “Safe Harbor” provisions of Section 2703(b) of the IRC. The IRS will respect the valuation in a buy-sell agreement if all three of the following conditions are met:
(b)Exceptions Subsection (a) shall not apply to any option, agreement, right, or restriction which meets each of the following requirements:
- “It is a bona fide business arrangement.
- “It is not a device to transfer such property to members of the decedent’s family for less than full and adequate consideration in money or money’s worth. [the “device test”]
- “Its terms are comparable to similar arrangements entered into by persons in an arms’ length transaction.” [the “comparability test”]
More on the “arms’ length” standard below.
The “Arms’ Length” Standard
IRC Sections 2703(a) and (b) apply to all closely held businesses, but in practice, they most commonly apply to family-held businesses. The IRS is more likely to scrutinize family-held companies and transfers between family members, as family members are more likely to want to give each other the most favorable terms possible.
This is where the “arms’ length” standard comes in. A buy-sell agreement’s terms should reflect the reality of doing business with unrelated parties, not family members. When business is done at arms’ length, all parties involved act in their own self-interest; the transaction is free from manipulation, duress, and favoritism; and transfers occur at fair market value. A transfer between family members at below-market value is a big red flag to the IRS.
Other red flags to avoid:
- Terms in the buy-sell agreement that are not supported with sound business reasons
- Fixed sales price or price formula in the buy-sell agreement that doesn’t reflect the current market
- Evidence the company’s purpose is more for estate planning than conducting business
As a business owner, one proactive step you can take is to have your buy-sell agreement reviewed by a business attorney and updated as needed to ensure it reflects the current market and aligns with the arms’ length standard.
Strategic Legal Advice to Protect and Grow Your Business
When was the last time your buy-sell agreement and other corporate governance documents were reviewed? Laws and circumstances change, and it’s smart to make sure your company’s documents reflect those changes. Business attorney Gem McDowell and his team can help.
For strategic legal advice and help with contracts, corporate governance documents, and starting, buying, or selling a business in South Carolina, contact Gem. Gem has over 30 years of experience helping individuals and business professionals across the state protect their interests, avoid mistakes, and plan for the future. Call the McDowell Law Group, with offices in Myrtle Beach and Mt. Pleasant, SC, at 843-284-1021 today to schedule a free consultation.
The Family Investment Company: Benefits and Risks (Avoid These 3 Mistakes)
Family investment companies (FICs) are becoming increasingly common among high-net-worth families. An FIC is typically a family-held LLC or family limited partnership (FLP) in which a wealthy founder transfers assets into the company, and other family members become partners or members in the business.
Creating an FIC can be a good way to protect and manage assets, pass on wealth to future generations, and reduce tax liabilities. However, over the years the IRS has cottoned on to the fact that some FICs exist for the sole purpose of reducing or avoiding taxes. This has led to increased scrutiny.
If you have an FIC, or are thinking about creating one for your family, here’s what you should know.
You Need a Legitimate Non-Tax Reason to Operate a Family Investment Company
The purpose of the FIC cannot be to reduce or avoid taxes. There must be a legitimate non-tax reason for the family investment company to exist in the first place.
For many families, centralized asset management is reason enough. FICs allow for assets to be pooled, managed, and overseen by multiple family members, rather than keeping those assets in separate trusts or an individual’s account(s).
Other potential legitimate reasons for creating and maintaining an FIC include:
- Asset protection (from creditors, family members, impending divorce, etc.)
- Business succession planning
- Preservation of larger assets by avoiding fractionalization
These are just some of the possible legitimate reasons to have an FIC; discuss your unique situation with your tax preparer, wealth advisor, business attorney, and/or estate planning attorney.
If the IRS determines that the FIC exists solely to evade paying taxes, it may be able to disregard the transfer of certain assets under Internal Revenue Code Section 2036 and count them in the estate of the donor/founder at death – a bigger topic we may cover in the future. For now, just remember that an FIC must have a non-tax purpose for existing.
You Must Respect the Business Entity and the Business
The IRS may look to see if the company is being run like a company or if it’s only “on paper.” A business that’s just on paper will have little to no activity and may serve solely as a place for assets to sit and generate income passively.
In contrast, a legitimate business in the eyes of the IRS is one that has a clear structure, maintains formalities such as holding meetings and keeping minutes, and engages in substantial economic activity such as managing and investing assets.
In addition, members/partners must respect the business entity itself and avoid piercing the corporate veil (read more about this on our blog).
Watch Out for Fractional Gifts
Why did the IRS start looking at family investment companies more closely over the past decade or so? Because some people got a little too greedy. Here’s what happened.
High-net-worth individuals discovered that the use of fractional gifts was a good way to handle the logistics of passing on assets to future generations, and it provided a tax benefit, too. A fractional gift in the context of an FIC typically involves a founder transferring a partial ownership interest in the FIC to a family member who is also a member/partner of the FIC.
This partial interest is eligible for discounts, often a discount for lack of control (when the stake in the business is under 50%) and a discount for marketability (because it’s harder to find buyers for a smaller, non-controlling share of a business). These discounts lower its value and, consequently, reduce the amount of gift taxes the donor is liable for. (Read more about discounts and on valuation of closely held companies here on our blog.)
But pigs get fat, hogs get slaughtered, as we often say. Not too long ago, some people tried to push the limit on these discounts, reducing the value beyond what the IRS found reasonable. This is what led to the IRS cracking down on families using FICs and fractional gifts, in particular, as tax evasion tools.
What’s a reasonable discount? There is no set number. This is something that needs to be determined on a case-by-case basis, ideally with the advice of an attorney, tax professional, and/or financial advisor.
Legal Advice on Business Matters and Estate Planning
For help with short-term and long-term estate planning and business planning, including succession planning, speak with Gem McDowell. Gem and his team help individuals and business professionals protect their interests and plan for the future with customized estate plans, corporate governance documents, and strategic advice. Gem also has many years of experience in tax law and holds a master’s degree in tax law from Emory University, and he is ready to help advise you on your tax issues.
Call the Gem McDowell Law Group, with offices in Myrtle Beach and Mt. Pleasant, SC, today at 843-284-1021 to schedule your free consultation.
Did You Know? SC Estates Over $600,000 Must Be Reported to the SCDOR
After someone dies in South Carolina, one of the duties of the personal representative (aka executor) is to create an inventory of the decedent’s probate assets and fair market value, as described in South Carolina Code Section 62-3-706. This inventory and appraisement must be filed with the court and mailed to any interested party within 90 days.
From there, the probate judge must send a copy of the inventory and appraisal to the South Carolina Department of Revenue (SCDOR) for every estate with probate assets of $600,000 or more, as detailed in SC Code Section 12-16-1220.
Here is the full text of that section:
“SECTION 12-16-1220. Information to be furnished by probate judge.
“The probate judge shall send to the department by mail a copy of the inventory and appraisal of the assets of every estate the gross assets of which for probated purposes are equal to or exceed the sum of six hundred thousand dollars within thirty days after it is filed, together with a copy of any will probated with respect to the estate. In the case of a nonresident decedent, the probate judge shall furnish the department with copies of all wills filed with his office and, in the case of an ancillary administration, the probate judge shall furnish the department with copies of inventories and appraisals in all cases regardless of the value of the tangible personal property and real property having a situs in this State.”
HISTORY: 1987 Act No. 70, Section 1.
What’s the purpose of this?
The purpose was to ensure that South Carolina received all the state-level estate taxes it was owed prior to 2005.
This law was created in 1987, when the unified credit amount was changed from $500,000 to $600,000, where it remained for a decade. All estates with probate assets of $600,000 or more were subject to federal estate taxes.
Also at that time, the federal government offered a federal credit against state estate taxes. This meant that a portion of an estate’s federal estate taxes would go to the state. South Carolina (and many other states) instituted a “pickup tax” equivalent to the amount of the federal credit. (See SC Code Section 12-16-510)
The federal credit was fully phased out in 2005, and South Carolina has no separate provision for collecting state-level estate taxes. So while the laws requiring reporting estates of $600,000 or more to the SCDOR and the “pickup tax” are no longer relevant, they remain on the books.
Get Help with Estate Planning
Gem and his team at the Gem McDowell Law Group help individuals and families across South Carolina create personalized estate plans to protect your interests and give you peace of mind. Schedule your free consultation today by calling us at (843) 284-1021 today.
Can I Disinherit My Child? Strategies for Disinheriting a Child from Your Will
The short answer is YES.
Yes, when writing your will, you have the power to disinherit your child and leave nothing to him or her. This is true in every state except for Louisiana, which does not allow a testator to disinherit a child under the age of 24 under the state’s “forced heirship” laws.
Leaving an inheritance to your child or children is not a legal requirement. But it is a cultural norm, and many children expect to inherit something upon the death of a parent. Some of those children then go on to contest the will or take other legal action to try to get what they believe is their fair share of the deceased’s estate.
For that reason, consider using some of the strategies below when intentionally disinheriting a child to reduce the likelihood of litigation after your death. The goal is not only to ensure your child doesn’t inherit a large amount from your estate, but also to help prevent legal action that could invalidate the will entirely.
Strategies for Disinheriting a Child in Your Will
Make your intentions clear
Name the child and be explicit about your intentions. Use language like: “I have intentionally chosen to make no provision for [Child’s Full Name] in my will.” (Consult an attorney in your state for the exact language to use in your will.)
Without this kind of language in the will, a child can make the case that the parent simply forgot to include them and make a claim for a share of the estate.
Consider a small inheritance instead of nothing
Rather than leave your child $0, you may want to leave a modest sum. It should be large enough to deter your child from taking legal action. This can soften the blow of being fully disinherited, too.
Include a “no-contest clause”
The tactic above is especially effective when used in conjunction with a “no-contest clause.” A no-contest clause states that if the child contests the will, he or she will not receive the inheritance.
Note that not all states recognize or enforce no-contest clauses. South Carolina does.
Disinheriting a Child FAQs
Should you include the reason for the disinheritance in the will?
In many cases, it’s best not to specify why you’re disinheriting the child. For one, wills become public during probate, so omitting details helps maintain privacy. Also, stating a reason could provide the disinherited child with grounds for contesting the will.
However, if you’re not leaving anything to your child in the will because you’ve made provisions for him or her outside the will, then it can be helpful to include this information.
To tell or not to tell?
A common question when disinheriting a child is, “Should I tell my child they are not in the will?”
At our firm, we advise our clients not to tell the child that he or she is being disinherited, for two main reasons.
- You may change your mind. Relationships and circumstances change, and you may decide in the future to make a new will leaving an inheritance to your child.
- Telling a child he or she is being disinherited can allow them to start building a case to eventually contest the will.
This does happen. We had someone call us who was upset his mother’s will left everything to his three siblings and nothing to him, as he had essentially already received his inheritance outside the will. He wanted to sue, which we told him was not possible as his mother was still alive. Instead, he started to monitor her movements, hoping to gather evidence of lack of testamentary capacity so he could contest the will after her passing.
Ultimately, it’s your decision whether to tell your child what’s in your will or not. In our experience, we recommend not doing so.
Call Estate Planning Attorney Gem McDowell
For help creating or updating a will, call Gem at the Gem McDowell Law Group. He and his team help individuals and families in South Carolina create personalized wills and estate plans that reflect their unique circumstances, family dynamics, and wishes. Call or contact us at our Myrtle Beach or Mount Pleasant, SC offices today to schedule a free consultation at 843-284-1021.
Grounds for Contesting a Will in South Carolina
If you’ve been intentionally disinherited or unintentionally left out of the will, you might be wondering what legal options you have to challenge the will.
South Carolina Code Section 62-3-407 lists six grounds for contesting a will. These six grounds are found in many states as they come from common law, but exact laws regarding contesting a will vary by state.
In South Carolina (and many other states), grounds for contesting a will are:
- Lack of testamentary intent or capacity
- Revocation
- Mistake
- Fraud
- Duress
- Undue influence
It’s not enough to simply be unhappy with the terms of the will; the burden of proof is on you to show that the will is invalid based on one of the six grounds listed above.
Let’s look at each in turn.
Lack of testamentary intent or capacity
The testator must “be of sound mind” when executing the will for it to be valid.
The standard of “testamentary capacity” is not very high, however; it’s lower than the mental capacity required to sign a contract. All that’s required is that someone is aware that they are creating a will, what a will is, and what the will says.
Possible evidence for lack of capacity: You must show that the testator was not of sound mind and/or did not understand what they were signing at the time of executing the will. This could be video evidence, witness statements, healthcare records, or medical provider statements that demonstrate lack of capacity.
Revocation
A will that’s currently being probated by the court may be contested if there’s evidence that the testator planned to revoke or replace it.
Possible evidence for revocation: Evidence could include the existence of a newer, properly executed will, a valid codicil that revokes or changes terms of the will, or witness testimony.
Mistake
This broad category includes both mistakes in execution and mistakes in fact or intent.
Mistakes in execution includes things like not signing a formal will or a codicil in the presence of two witnesses, as required by law in South Carolina and many other states. (The exact requirements for validity depend on state law and on the type of will.)
Mistakes in fact or intent includes things like using the wrong name for an heir. In one example from our practice, a couple came in to create a will and named their two daughters as heirs to their estate. One child had been born a male, and the parents were insistent on using the child’s new chosen name rather than the legal name. This might seem like a small matter, but using a non-legal name could create grounds on which to contest the will in the future. In this situation, we advised the clients to use the child’s legal name and include “who goes by [New Name]” for clarity.
Possible evidence for mistake: Evidence for mistakes in fact or intent could include testimony or documentation that demonstrate the testator’s true intentions.
Fraud
A will may be contested on the grounds of fraud if one or more of the signatures was forged, if the testator was misled into signing a document believing it was something else other than a will, if a valid will was hidden or destroyed so a previous will would be probated in its place, and similar situations.
In our experience, the most common form of fraud occurs when the testator thinks they are signing Document A but are actually signing Document B. That’s why it’s important to take the time to read through what you are signing.
Possible evidence for fraud: It depends on the type of fraud suspected; evidence could include analyses from handwriting experts, witness testimony, or proof a more recent will was created and executed.
Duress
A valid will must be the product of the testator’s free will, and evidence of coercion can be grounds for contesting the will. If the testator created or changed the will under duress, such as blackmail, physical harm, or threat of harm, the will may be declared invalid.
Possible evidence for duress: Witness testimony, medical records indicating the testator’s vulnerability, and written communications between the testator and the individual coercing the testator are some types of evidence that can show duress. In cases of duress, the final will is often substantially different from the previous will, as well, which can serve to demonstrate the testator’s mindset.
Undue influence
Like a will created under duress, a will created under undue influence does not reflect the true intentions and wishes of the testator. But undue influence is more subtle than duress and often more difficult to prove.
Undue influence occurs when the testator is psychologically manipulated or pressured into redoing or making changes to the will, usually by someone close to the testator. This often (but not always) happens in conjunction with the trusted person isolating the testator or cutting him or her off from friends and family. It’s most common with older people who are more vulnerable physically and psychologically.
Possible evidence for undue influence: Proving a will is the result of undue influence is often challenging since undue influence happens “behind closed doors,” in the words of the South Carolina Court of Appeals. Evidence might include a final will which is substantially different from previous wills; proof that the testator’s behavior and habits have changed (e.g., the testator used to go out a lot but later stayed at home with a caregiver all day); records showing the testator used to communicate with friends and family regularly but then stopped and has lost contact with them; and witness testimony.
A successful case of contesting a will on the grounds of undue influence in South Carolina is Gunnells v Harkness, 2019, in which a daughter contested her mother’s will over undue influence from her brother. We examined this case in depth in a previous blog; read it here. It’s helpful to see exactly what kind of evidence – and how much – helps convince a court that undue influence has occurred.
Note: Don’t mistake unfair or unequal terms for undue influence. It’s not uncommon for parents to leave a larger inheritance to a child who has acted as caretaker in the final years, or for a testator to leave everything to the surviving spouse and nothing to the children. On their own, these terms do not indicate undue influence. Proving undue influence is challenging and requires a large amount of evidence that shows a clear pattern over time.
Other grounds
South Carolina Probate Code specifically lists six grounds for contesting the will. In addition, South Carolina courts may also invalidate specific provisions that violate public policy if, for example, a provision incites unlawful actions or is discriminatory.
Is Contesting the Will Worth It?
Contesting a will can be a lengthy, expensive, and contentious route, and sometimes it’s not worth it. (Read more about this in our blog on being disinherited, which you can read here.)
However, sometimes contesting the will is the right thing to do, especially if you believe the will does not accurately reflect the wishes of the deceased.
Get Help Creating or Contesting a Will in South Carolina
Gem McDowell has helped individuals and families in South Carolina for over 20 years with estate planning. Whether you need help creating, updating, or reviewing a will or estate plan, or need advice or assistance probating or contesting a will, he can help. Call Gem and his team at the Gem McDowell Law Group with offices in Myrtle Beach and Mount Pleasant, SC to schedule a free, initial consultation by calling 843-284-1021 today.
I’ve Been Disinherited – Now What? (And Is Contesting the Will Worth It?)
You were expecting an inheritance, but you were left out of the will. Now what? Is there anything you can do if you’ve been disinherited?
Maybe. State law protects spouses from being intentionally and unknowingly disinherited and gives other would-be heirs grounds on which to contest the will.
In this blog we’ll look at what you can do if you’ve been disinherited – that is, intentionally left out of the will. (If you were unintentionally left out, you were not “disinherited” but “omitted” or “pretermitted.” Read our blog on omitted spouse / pretermitted child for what to do next.) We’ll also consider the question of whether contesting the will is worth it.
Note that laws governing wills and probate vary by state, so while many of the concepts below apply to other states in addition to South Carolina, be sure to speak with an estate planning attorney in your state.
First things first:
Are You Entitled to an Inheritance?
Only a surviving spouse is protected from being unknowingly disinherited; more about this below.
No one else – not even a child of the deceased – is entitled to an inheritance in South Carolina. While there is a cultural custom and even expectation that parents will leave something to their children after death, it is not a requirement.
What To Do When You’ve Been Disinherited
Speak with an attorney in your state with experience handling will contests about your situation. Many law firms (including ours) offer a short, free consultation, which can help you understand what your options are.
The next steps depend on your unique circumstances. You may decide to do one of the following:
– Claim Spousal Elective Share
A disinherited spouse may claim “elective share,” a portion of the decedent’s estate guaranteed under the law to a surviving spouse in separate property states like South Carolina. The surviving spouse is entitled to this share regardless of the terms of the will, unless the couple has previously signed a waiver of elective share or similar document.
Read more about Elective Share in South Carolina and how to claim it here.
– Contest the Will
In general, a testator (the person writing the will) has broad authority to decide how to dispose of his or her assets, and the probate court will follow the testator’s wishes as recorded in the will. If he or she did not leave anything to you in the will, that’s usually the end of the matter.
However, there are situations in which a will, or portions of it, can be declared invalid if challenged. South Carolina Probate Code Section 62-3-407 provides the following six grounds on which to contest a will:
- Lack of testamentary intent or capacity
- Revocation
- Mistake
- Fraud
- Duress
- Undue influence
Read more about grounds for contesting a will in our blog here where we go into depth. In addition to the six statutory grounds, South Carolina courts may also invalidate provisions of a will that violate public policy, such as those that promote unlawful behavior or are discriminatory.
To contest a will, you must be an interested party, i.e., you would stand to inherit if successful in your claim. Further, the burden of proof is on you to prove the will is not valid, under the same section cited above. The presumption of the court is that the will is valid, so it’s your responsibility to provide enough evidence to overcome that presumption.
– Sue an Individual for Interference with Inheritance
Some states recognize an “intentional interference with inheritance” (IIWI) claim. This allows a would-be heir to sue someone whom they believe intentionally prevented them from receiving an inheritance through fraud, undue influence, defamation, or similar misconduct.
South Carolina does not recognize this cause of action as of August 2025, but that could change in the future.
– Accept the Terms of the Will and Not Pursue the Matter
It can be hard to accept that you were disinherited, especially if you had a good relationship with the deceased and were expecting an inheritance. You might think it’s unfair that your parent left everything to his or her spouse instead of the kids, or that siblings received unequal amounts, or that your partner left everything to the children from a previous marriage.
But wills don’t have to be fair; they often aren’t. Unfair and legally invalid are not the same thing, however. Many times, the prudent course of action is to accept the will as is and move on.
Contesting the Will: Is It Worth It?
We get calls from people who are blindsided, and often very upset, after discovering they’ve been cut out of a relative’s will. They are prepared to jump into litigation to get what they believe is rightfully theirs.
Here’s the truth: The process of contesting a will is expensive, challenging, and time-consuming – and that’s true even in the best-case scenario, when things go your way. If they don’t, you will be out a lot of money and may have irreparably damaged relationships with relatives and friends.
Before contesting a will, you need to know if it’s worth it. Ask yourself:
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What would you stand to gain in the best-case scenario?
Hint: It could be less than you think.
In many cases, people discover that the actual inheritance would be much less than what they had expected. This is especially true for estates of modest and average size. The Federal Reserve has an interesting article with data on expected vs. actual inheritance; see Panel B, which shows those in the bottom 50% by wealth, expected, on average, an inheritance of $29,400 but received just $9,700 – a substantial difference.
Why the discrepancy?
For one, inheritance comes from the decedent’s probate estate, after expenses are paid. A will only directs where assets subject to probate should go. (Read more about probate and which assets are subject to probate here on our blog.) From that, heirs inherit their portion after taxes, debts, probate fees, administrative costs, attorney fees, and funeral expenses have been paid out of the value of the estate. These expenses can eat up a large portion, leaving behind a much smaller estate to divvy up between heirs.
Also, just because a person is wealthy, it does not mean his or her probate estate will be large. Many people use trusts and other estate planning instruments to keep assets out of their probate estate. You may discover that the value of the probate estate is actually very small, even if the deceased was very wealthy.
You also have to consider how many people would share the inheritance. The number of other heirs you would split an inheritance with depends on how the probate court determines the assets should be distributed. It could be under the terms of the current will after certain provisions have been struck; under the terms of a previous will; or under state intestacy laws, which apply when someone dies without a will.
In one case we worked on, a man was upset that his mother’s will left everything to her husband (his stepfather) and nothing to him and his brothers. If he successfully contested the will, South Carolina’s intestacy laws would apply because there was no previous will. That means half would go to his stepfather and the other half would be divided between the four siblings. He’d stand to get just ¼ of ½ of the estate, or 12.5%.
Now, that figure doesn’t mean anything in and of itself; 12.5% of $10,000 isn’t a life-changing amount of money, but 12.5% of $10,000,000 is. It depends on the particular circumstances. But that brings us to the second question you should ask yourself.
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Risk Vs. Reward: What’s Your Tolerance?
Let’s say you stand to inherit 12.5% of an estate worth $10 million after all taxes, debts, and fees have been paid, which comes out to $1,250,000. It will take about $50,000 in legal fees to successfully contest the will. In this case, yes; if you have a strong case, risking $50,000 for the potential to gain $1,250,000 is worth it.
What about spending $10,000 for the potential to gain $17,000? A woman called our office upset that her mother had cut her out of the will and left everything to just one of the three sisters. If she prevailed in contesting the will, she’d split her mother’s roughly $50,000 estate with her two sisters (because there was no surviving spouse), which comes out to around $17,000. Is risking $10,000+ in fees for a shot at <$17,000 worth it?
In addition to risking her money, this woman would risk fracturing her relationships with her sisters, which brings us to the third question to ask yourself.
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Can You Accept the Non-Monetary Fallout?
Be prepared for the possible ramifications that have nothing to do with money. Contesting a will and battling over a deceased relative’s estate often leads to the destruction of previously solid relationships and family bonds. We see it every day, unfortunately.
Think about how much those relationships are worth to you before moving ahead with contesting the will.
Have You Been Disinherited? Do You Need Help with Estate Planning? Call Gem
The above is not intended to dissuade you from taking legal action, but to help you see the situation from a legal point of view. Maybe you believe the potential financial reward is worth the risk. Or maybe you’re not motivated by money but by the desire to right a wrong and ensure your loved one’s true wishes are carried out, especially if you believe there’s been fraud, duress, or undue influence. Whatever your situation is, we urge you to consider the questions above if you’re considering contesting the will.
Speaking with an estate planning / probate attorney in your state is a good first step. An attorney can help you claim elective share (if you’re a disinherited spouse) or help you determine whether taking legal action like formally contesting a will is likely to succeed.
Call estate planning attorney Gem McDowell for help probate, creating a will, contesting a will, or other estate planning matter in South Carolina. Gem and his team at the Gem McDowell Law Group help individuals and families across South Carolina create personalized wills and comprehensive estate plans for peace of mind, as well as handle issues of probate and inheritance. Call Gem and his team at their Myrtle Beach or Mt. Pleasant, SC offices today at 843-284-1021 to schedule a free consultation.
A “Class of One” May Bring a Derivative Action in S.C. – The Boathouse Case
What can a member of an LLC do when another member is mismanaging company money, using it to support his other failing business ventures, and (allegedly) spending it on personal expenses like exotic travel and polo ponies?
This is not theoretical; these are some of the facts in the 2024 South Carolina Court of Appeals case The Boathouse at Breach Inlet, LLC v. Richard W. Stoney (find it here). In it, one LLC member brought a derivative action, a lawsuit brought on behalf of a company/LLC by one or more of its shareholders/members, against another member.
A derivative action is often the only remedy shareholders/members have when management has failed to take action to protect the company. That’s why the Boathouse decision is important: It now gives standing to bring a derivative action to a “class of one” even if he or she is not “similarly situated” to other shareholders/members. It also looks at factors for determining whether the individual can maintain the claim.
We’ll look at what this all means and how the court came to its decision below.
(Note that a petition to rehear the case is currently pending before the Supreme Court of South Carolina. We will update this article with any new information.)
Very Brief Background of Boathouse
The background to this case is extremely detailed so this summary gives the broad strokes only. In short:
Richard Stoney (Richard) founded a number of interrelated LLCs starting in the 1990s. One was an LLC for the Boathouse on Breach Inlet (the Boathouse), a popular restaurant in the Charleston area, which he co-owned with other family members and business partners. Another was Crew Carolina, LLC (Crew Carolina), solely owned by Richard, which managed his other LLCs and restaurants. Using a sweep account for banking, revenue from the Boathouse and other restaurants went into the Crew Carolina bank account each night.
The Boathouse did well, but Richard’s other ventures did not. He began taking money from the Boathouse via Crew Carolina and using it to keep other enterprises afloat, as he later admitted to in divorce proceedings (Stoney v Stoney, 2018). Others testified that his misuse of company funds, including use for personal expenses, led to instances of not being able to make payroll, owing the IRS money, and incurring late fees. Richard was advised to stop these practices, yet they continued until at least May 2019.
Eventually, Crew Carolina owed the Boathouse LLC over $4 million.
No Support for Laurance’s Derivative Action
In October 2015, Laurance Stoney brought a derivative action on behalf of the Boathouse against Richard and Crew Carolina (collectively, Defendants). Laurance is Richard’s first cousin and one of the original co-owners of the Boathouse at Breach Inlet, LLC, owning 5%.
The derivative action asserted:
- Breach of fiduciary duty
- Conversion
- Unlawful distributions
- An accounting
- Unjust enrichment
Understandably, the Defendants asserted various claims against the action. In addition, two other members opposed the derivative action and moved to intervene.
In a non-jury trial, the circuit court issued an order holding that Laurence was not a “fair and adequate” representative to bring the action, saying that his motivations for doing so were vindictive and personal, rather than seeking to correct a corporate wrong. Further, it said the equitable remedy he sought was tainted by his own inappropriate conduct, especially since 90% of the Boathouse LLC’s membership opposed the action.
This appeal followed.
The Court Finds a “Class of One” Who Is Not “Similarly Situated” Has Standing To Bring a Derivative Action
The plain language of both South Carolina Code Section 33-44-1101 and rule 23(b)(1) of the South Carolina Rules of Civil Procedure allow for an individual to bring a derivative action.
However, the latter also specifies “The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of the shareholders or members similarly situated in enforcing the right of the corporation or association.” (Emphasis added.)
And here’s where the court’s decision becomes interesting. The court notes that “The parties stipulated Laurence was not similarly situated to the other members, and Laurence admitted that no other members officially supported his action.” Yet it looks to other jurisdictions for guidance on interpreting “similarly situated” and how to determine what makes a valid “class of one” plaintiff. Among others, the court cites:
*A Utah Supreme Court case (Angel Invs. LLC v. Garrity, Utah 2009) holding that a single shareholder could maintain a derivative action as a “class of one” when the shareholder:
- Seeks by its pleading[s] to enforce a right of the corporation and
- Does not appear to be similarly situated to any other shareholder
(Emphasis added.)
And
*A Texas Supreme Court case (Eye Site, Inc. v. Blackburn, Texas 1990), which found that the rule guiding who may bring a derivative action “does not place any minimum numerical limits on the number of shareholders who must be ‘similarly situated.’ It follows that if the plaintiff is the only shareholder ‘similarly situated,’ he is in compliance with both the letter and the purpose of the rule.”
The South Carolina Court of Appeals found that even though, by the admission of multiple parties, Laurence was not “similarly situated” to other LLC members, he did have standing to bring a derivative action. “We agree with the above cases and hold that under the appropriate circumstances, a single member of a limited liability company may ‘fairly and adequately represent the interests of’ a class of one and have standing to maintain a derivative action. To hold otherwise would be to deprive a sole dissenting shareholder from seeking relief from another shareholder’s wrongdoing.”
Davis Factors and Requirements for Representation
Standing to bring a claim is one thing. Being able to maintain the claim is another.
The court looks to the Sixth Circuit Court of Appeals case Davis v. Comed, Inc. (1990), which set forth the following factors for evaluating whether a plaintiff meets the requirements for representation:
- Economic antagonisms between representative and class
- The remedy sought by plaintiff in the derivative action
- Indications that the named plaintiff was not the driving force behind the litigation
- Plaintiff’s unfamiliarity with the litigation
- Other litigation pending between plaintiff and defendants
- The relative magnitude of plaintiff’s personal interests as compared to his interest in the derivative action itself
- Plaintiff’s vindictiveness toward the defendants
- The degree of support plaintiff was receiving from the shareholder he purported to represent
These factors are not exclusive, and the court must consider the totality of the circumstances.
To determine whether Laurance is a good representative of the company who can maintain the action, the Appeals Court of South Carolina addresses these factors, with particular emphasis on the two cited in the circuit court’s decision:
Lack of support: The court said it must consider the motives of the other LLC members for opposing the action. Based on the evidence, the court determined it was “evident” that Richard and the other co-owners opposing the action were “motivated by their individual interests.”
Vindictiveness: The circuit court found that Laurance was motivated by vindictiveness. But the appeals court notes that high emotions are common in such disputes in closely held corporations, and that the hostility between the parties in this case is “not fatal” to Laurance maintaining the derivative action.
“We further hold the remaining Davis factors support Laurence’s standing to bring this action,” the court says.
(Read the opinion for the specifics on why the court came to these conclusions.)
Get Strategic Legal Advice from Business Attorney Gem McDowell
Gem McDowell and his team at the Gem McDowell Law Group help businesses in South Carolina grow and succeed while protecting the interests of the individuals involved and the business itself. If you need advice or help starting, growing, buying, or selling a business, or you want strategic advice from a problem solver with over 30 years of experience, call Gem. We have offices in Myrtle Beach and Mt. Pleasant, SC, and offer a free initial consultation. Schedule yours by calling (843) 284-1021 today.
UPDATED Avoid $591/Day Penalty: Business Owners, File a BOI Report ASAP
UPDATE: Under FinCEN’s final interim rule, U.S. companies and U.S. persons involved in foreign companies no longer need to file a BOI Report. Individuals involved in a foreign company still must file a BOI Report. Now, “reporting companies” are “only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as ‘foreign reporting companies’).” Here are the links to the short statement and the longer interim rule.
UPDATE: FinCEN will not issue fines or penalties for failure to file or update BOI information by the March 21st, 2025, according to a statement put out on February 27th. FinCEN will provide an interim rule no later than March 21st with guidelines on deadlines.
UPDATE 02/25/25: The new deadline to file BOI reports is March 21, 2025, for most businesses, after the February 18th ruling by the U.S. District Court for the Eastern District of Texas in the case of Smith, et al. v. U.S. Department of the Treasury, et al.
If you were supposed to file a Beneficial Ownership Information report by December 31, 2024, but waited to see what would happen in the courts, you now have until March 21st to go ahead and file. Read the original blog post, below, for information on how to do that.
Find the official notice from FinCEN here (PDF), and stay alert for more updates, as FinCEN states it “will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.”
UPDATE: The requirement to file BOI reports is on hold – at least for now. From The National Law Review: “On December 3, 2024, the U.S. District Court for the Eastern District of Texas entered a preliminary injunction suspending enforcement of the Corporate Transparency Act (CTA) and its implementation of regulations nationwide.” In response, the Department of Justice issued a notice of appeal on December 5th.
What this means for you: If you have already submitted your BOI report(s), there’s nothing left to do. If you have not yet done so, you may choose to do so anyway or wait and see how the legal proceedings play out. As noted in the article linked above, “reporting obligations may change on short notice,” so make sure to monitor the news for updates. You can also come back to this post, which we will keep updated.
Original post published Nov. 15, 2024:
Attention U.S. business owners: If you are a beneficial owner in a non-exempt company, you must submit a Beneficial Owner Information Report. Depending on when your company was established, you may have 30 or 90 days from when your company was created or until January 1, 2025, to do so.
The penalty for failing to file is steep – over $500 per day in fines and even jail time.
The new reporting requirement is due to the Corporate Transparency Act (CTA), which was passed in late 2020 after being tacked onto a larger bill (the National Defense Authorization Act for Fiscal Year 2021). Here’s what to know about the reporting requirement and what you should do.
Frequently Asked Questions
How Do I File a Beneficial Owner Information Report?
You can file a BOIR online at https://www.fincen.gov/boi.
What is a Beneficial Owner Information Report?
A Beneficial Owner Information Report (BOIR) is a required submission to the Financial Crimes Enforcement Network (FinCEN, part of the Treasury Department) that contains information on the company and its beneficial owner(s). This information includes full name, address, date of birth, and ID.
What is a “Beneficial Owner”?
A “beneficial owner” is someone who owns or controls at least 25% of the “ownership interests” of the company or someone who exercises “substantial control” over the company.
Who Must File a Beneficial Owner Information Report?
A BOIR must be filed for every “reporting company” which is established in the U.S. or registered to do business in the U.S. and is not exempt (see below for exemptions). This may be an LLC, a corporation, or any other business entity that was created by filing with the secretary of state, as well as some trusts.
Just one BOI report is required per company, regardless of the number of beneficial owners. The report is typically filled out and filed by one of the beneficial owners, such as a member, manager, director, or corporate officer, or an attorney working at or for the company.
Which Companies Are Exempt?
Some companies qualify for an exemption, meaning they are not required to file a BOI report.
These include companies that are already subject to regulatory oversight such as banks, credit unions, insurance companies, and tax-exempt entities. “Large operating companies” are also exempt; under the CTA, a “large operating company” is one with a physical office in the U.S., more than 20 full-time employees, and over $5 million in gross receipts or sales for the previous year as reported on a federal income tax or information return.
Find the full list of the 23 exempt entities on the FinCEN website.
When is the BOIR Due?
Companies formed or established before January 1, 2024 have until January 1, 2025 to submit a BOIR. Update 02/25/25: the new deadline is March 21, 2025 for most companies. Companies that had previously been granted an extension beyond March 21st have until the later deadline, as stated in the February 18th FinCEN notice.
Companies that have ceased to exist but were still in existence as of January 1, 2024 have until January 1, 2025 to submit a BOIR. Update 02/25/25: the new deadline is March 21, 2025.
Companies formed or established between January 1, 2024 and January 1, 2025 have 90 days to submit a BOIR.
Companies formed or established after January 1, 2025 have 30 days to submit a BOIR.
Is a BOIR Due Every Year?
No, as of now, just one BOIR is required. However, substantial changes must be reported within 30 days with a new BOIR, if, for example, the beneficial owners change or a previously non-exempt company becomes exempt (or vice versa).
What is a FinCEN Identifier?
A FinCEN ID is a unique 12-digit number an individual or entity may use when submitting a BOIR. It is not required. However, if you are submitting multiple BOIRs, a FinCEN ID can help speed up the process by allowing you to submit your personal information just one time rather than repeating it again and again.
What Are the Penalties for Non-Compliance?
According to FinCEN, someone who “willfully” violates the BOI reporting requirements may be fined for each day the violation continues. The amount of the fine adjusts annually with inflation, so what was originally a $500 per day fine was (as of 2024) $591 per day.
Willful violation can also lead to up to two years in prison and a $10,000 fine.
Uncertainty Over the Future of the CTA
The stated intention of the Corporate Transparency Act is to reduce money laundering, financing of terrorism, and other financial crimes. However, it has already been challenged in a number of lawsuits, as some see it as intrusive and unconstitutional. The future of the CTA is unclear, as these legal challenges could lead to significant changes in reporting requirements.
But that’s a long way off, if it happens at all. For now, you can stay in compliance and avoid steep financial penalties (and possible imprisonment) by submitting a BOIR for any company in which you’re a beneficial owner.
Protect Your Interests, Avoid Mistakes, and Grow Your Business with Gem McDowell
For legal help and strategic advice on business in South Carolina, contact Gem of the Gem McDowell Law Group. Whether you want to establish, buy, sell, or grow your business, Gem and his team can help. Call the Myrtle Beach or Mt. Pleasant, SC office today at 843-284-1021.
Can You Prevent Future Spouses from Inheriting? Irrevocable Wills vs. Public Policy and the Ward Case
Imagine your spouse dies and you discover that not only were not provided for in the will, but that their previous will specifically barred you from inheriting anything at all. What would you do?
This is what happened to Mary K. Ward. Mary was the fourth wife of Stephen Day Ward, Jr., who had an irrevocable will from an estate plan created with his third wife, Nancy. While Stephen’s will explicitly barred future spouses from inheriting anything, South Carolina statute provides for spouses left out of the will. This led to an interesting conflict: which should prevail, public policy or a valid contract?
The matter, In RE: Estate of Stephen Day Ward, Jr., went before the South Carolina Court of Appeals in 2024 (read it here), and we go into it below.
It’s a good look at how South Carolina courts view public policy and at the powers and limitations of irrevocable wills. It’s especially important if you have or have considered getting an irrevocable will.
Should You Get an Irrevocable Will? Pros and Cons
Irrevocable wills are wills that cannot be changed or amended once signed. The only exception is divorce, which typically only blocks the ex-spouse from acting as executor and inheriting anything; the rest of the will stands. (The laws regarding this vary by state; check in your state.)
Some people, often married couples, choose irrevocable wills because they cannot be changed. They want their estate plan to be carried out as originally agreed, even if one spouse predeceases the other by many years. The surviving spouse is bound by the terms of the will(s) they created together and cannot change the terms for any reason.
Advantages of an irrevocable will over a traditional revocable will:
- Guarantee the estate plan will be carried out, even after death
- Protect assets from being passed down to the surviving spouse’s new partners, spouses, or stepchildren, or other potential heirs
- Prevent the surviving spouse from being pressured into changing terms of will
We do not draft irrevocable wills here at our law firm – neither irrevocable joint wills (one document for two or more people) nor mutual wills (separate documents for each individual).
Why not? Because things change. Life circumstances, family dynamics, personal finances, and state and federal law affecting estate planning can change drastically, but an irrevocable will can lock you into decisions you made long ago when life was very different. Further, other tools can be used to accomplish many of the same goals. We’ll go into some of those options down below.
Finally, there are no guarantees, even with an irrevocable will. Which leads us to the Ward case.
The Irrevocable Wills and Estate Plan of Stephen and Nancy
In 2013, Stephen Ward married for the fourth time, to a woman named Mary. They did not create an estate plan together during their marriage, and Stephen did not take any action with regards to the will he executed during his third marriage to wife Nancy.
Stephen died in 2016. Under the terms of his will, Mary was barred from inheriting anything.
Mary then sought, through her daughter, to be declared an omitted spouse. As an omitted spouse, she would be entitled to the share of Stephen’s probate estate that she would have received had there been no will at all, which is 50% under South Carolina’s intestacy laws.
Stephen’s children (the Appellants), acting as his co-personal representatives, disagreed that Mary should receive an inheritance. That’s because Stephen and Nancy had executed an estate plan together in 2005 which barred any future spouse from inheriting anything.
The Terms of the Estate Plan with Third Wife Nancy
The estate plan, which included Stephen’s irrevocable last will and testament (the Will) and an agreement for mutual wills and trusts (the Agreement), worked with interlocking provisions to ensure their wishes were carried out in this manner:
- After one spouse died, his or her assets would “pour over” into a trust controlled by the other
- After the death of the other spouse, the remaining assets would be dispersed among Stephen’s and Nancy’s children
These terms are quite common among couples. The Agreement contained the following terms regarding re-marriage, too:
4.2 If he or she remarries after the death of the
Predecessor, he or she will:
4.2.1 Thereafter ratify his or her Will and
Trust in the form and with the provisions
contained in his or her Will and Trust
annexed hereto; and
4.2.2 As a condition of such re-marriage,
require any person he or she re-marries to
legally and unconditionally waive his or her
right to an Elective Share in the Property
provided to them under S.C. Code Ann.
Section 62-2-201
Stephen did not carry out the terms of the Agreement after his marriage to Mary to ratify the will or to have Mary waive her right to elective share.
The matter was heard in probate court and circuit court before eventually going before the Court of Appeals of South Carolina.
The Four-Part Test for Omitted Spouses
Did Mary qualify as an “omitted spouse”? To settle the matter, the court looked to a four-part test it previously established in Green v. Cottrell (2001), which essentially turns the relevant statute (SC Code Section 62-2-301) into a checklist:
“A surviving spouse who wishes to qualify as an ‘omitted spouse’ must demonstrate:
- The decedent spouse executed the will in question prior to the marriage;
- The will does not provide for her as the surviving spouse;
- The omission was unintentional; and [sic]
- The decedent did not provide for the spouse with transfers outside the will.”
The first two points: undisputedly true.
Point #3: “Hotly disputed.” The court states that had Stephen executed the documents required by section 4.2 of the Agreement – namely, ratifying the Will and Trust and having Mary sign a waiver of elective share – the Appellants would be in a better position to argue that the omission of Mary from the Will was intentional. Since he didn’t, the court agrees with the probate court that the omission was not intentional.
(It’s worth noting that witnesses at the earlier trial testified Stephen said he still intended for his estate to be handled as described in the Will, and that getting married would not change that. However, the “Dead man’s” statute, SC Code Section 19-11-20, generally prohibits witnesses from providing testimony about conversations with the deceased if they would stand to benefit from it.)
Point #4: Also “hotly disputed.” Brian Ward, one of Stephen’s children, testified in probate court that Mary had received several things during the marriage and after Stephen’s death, including a leased Toyota Camry, a timeshare in Las Vegas, the $17,000 capital percentage from a local club membership, and approximately $13,000 in total. The Appellants argued that these assets were a transfer outside of the will. The court disagreed, saying the value does not approach what Mary would otherwise have been entitled to from an estate valued in excess of $900,000.
The court found that Mary was an omitted spouse under this test.
When a Valid Agreement and Public Policy Clash
“South Carolina treats with great deference a testator’s intent in disposing of his or her property,” says the SC Court of Appeals. Yet it also acknowledges that sometimes a testator’s intent may conflict with public policy.
In this case, there’s no dispute that the Will and the Agreement, which would bar Mary from inheriting anything, were valid. This directly clashes with South Carolina’s protections for surviving spouses from being unknowingly disinherited (read more about elective share) or from being omitted entirely (read more about omitted spouse), which is considered a matter of public policy.
Ultimately, the appeals court AFFIRMED the circuit court and the probate court, which had said that allowing “blanket” provisions to overcome an individual’s statutory rights to the omitted spouse’s share violated public policy.
Alternatives to Irrevocable Wills for Asset Protection
As stated above, we do not use irrevocable wills here at our firm. We use other estate planning tools to accomplish the same goals.
- Life estate deeds allow a surviving spouse to live in the home but ensure the home is passed to a different heir upon the spouse’s death
- Irrevocable trusts remove assets from probate estate altogether
- Testamentary trusts created by the will upon the death of the testator
- QTIP trusts provide income to surviving spouse while reserving assets for children
- Prenuptial or postnuptial agreements to waive elective share
These are just some of the options available. Speak with an estate planning attorney in your state about the right options to achieve your goals.
Personalized Estate Planning
Does your current estate plan reflect your family’s wishes? Are you as protected as you could be? For help creating, amending, or reviewing your estate plan, call Gem McDowell today. He and his team at the Gem McDowell Law Group help individuals and families in South Carolina create comprehensive, customized estate plans that help protect assets, preserve good family relationships, and provide peace of mind. Schedule your free consultation today by calling (843) 284-1021. We have offices in Myrtle Beach and Mt. Pleasant, SC, and are looking forward to speaking with you.
The One Big Beautiful Bill: Implications for Estate Planning & Running a Business
H.R.1 of the 119th Congress, better known as the “One Big Beautiful Bill Act,” was signed into law on July 4, 2025. This omnibus bill contains many provisions that could affect estate planning and running a business. This blog is a very brief overview highlighting some key points we believe you should be aware of.
Contact your own CPA, business attorney, and/or estate planning attorney to discuss how the bill affects you.
Implications of the OBBB for Estate Planning
The following provisions in the OBBB affect estate planning:
- $15 million applicable exclusion amount for federal estate taxes, lifetime gift taxes, and generation-skipping transfer (GST) taxes
- 1031 “Like Kind” exchanges preserved
- Step-up in basis at death is the same; it has not been repealed or capped
Check out this blog for a closer look.
Implications of the OBBB for Business Owners
OBBB affects some businesses, too.
- Expansion of Qualified Small Business Stock (QSBS) exclusion (read more about the QSBS here on our blog)
- The Qualified Business Income (QBI) deduction is now permanent (read more about the QBI deduction on the IRS website)
- Doubles available deductions under Section 179 from $1.25 million to $2.5 million
Many additional provisions in the bill have implications for yearly tax planning and managing cash flow, which you should discuss with your company’s CPA and/or tax preparer.
South Carolina Business Attorney Gem McDowell
Gem and his team at the Gem McDowell Law Group help people start, grow, and protect their businesses in South Carolina. Gem McDowell is a problem solver with over 30 years of experience in business law and commercial real estate, helping business professionals protect their interests and avoid mistakes. Call to schedule a free consultation today at (843) 284-1021.
Estate Planning After the One Big Beautiful Bill
The signing into law of the One Big Beautiful Bill Act (H.R. 1 of the 119th Congress) on July 4, 2025 has a few very important implications for estate planning. Here’s a brief look at them.
Contact your own CPA and/or estate planning attorney to discuss if and how you are personally affected.
The Combined Exclusion Amount is $15 Million, Permanent and Tied to Inflation
Each individual may transfer up to $15 million, and married couples up to $30 million, tax-free during life or after death, starting in 2026. This $15 million combines exclusions for federal estate taxes, lifetime gift taxes, and generation-skipping taxes (GST) into one.
Read more about this and the history of the applicable exclusion amount / unified credit in our blog here.
1031 “Like-Kind” Exchanges Are Fully Preserved Without Limits
Individuals and real estate investors can defer capital gains taxes by exchanging one investment property for another of “like kind.” The OBBB did not include any caps or restrictions on 1031 exchanges.
Read more about 1031 “Like-Kind” Exchanges here on our blog.
Get Help with Estate Planning in South Carolina – Call Gem McDowell
If you need help with wills, trusts, or estate plans for estates large or small, call the Gem McDowell Law Group. Gem and his team help individuals and families create personalized wills and estate plans that reflect their unique circumstances and wishes. With offices in Myrtle Beach and Mt. Pleasant, SC, we’re here to help. Call us at (843) 284-1021 today to schedule a free consultation.
Applicable Exclusion Amount Now $15 Million – Its History and Future
The One Big Beautiful Bill (OBBB) has set the applicable exclusion amount taxes at $15 million per individual, or $30 million per married couple, starting in 2026. This amount will be indexed for inflation starting in 2027.
Notably, the OBBB has made these changes permanent. It’s been common in recent decades for tax legislation to contain sunset provisions that mean specific provisions automatically expire after a period of time. As of now, the applicable exclusion amount can only be changed by an act of Congress.
Making the amount permanent without a looming expiration date allows individuals and families to plan ahead with more certainty. As you’ll see below, the exclusion amount/unified credit has changed frequently over the years, making estate planning challenging due to uncertainty.
But first, here’s what you should know about this combined $15 million exclusion amount.
$15 Million Exclusion Amount: What to Know
*An individual may transfer up to $15 million either during life or at death without triggering any federal estate taxes, lifetime gift taxes, or generation-skipping transfer (GST) taxes.
*This amount doubles to $30 million per married couple. Portability rules mean that any amount of the $15 million exclusion a spouse did not use before his or her death can be used by the surviving spouse.
*Transfers are taxed above the limit of $15 million per individual or $30 million per married couple.
*The exclusion does not apply to transfers from one spouse to his or her U.S.-citizen spouse. Transfers of money between spouses are unlimited under the unlimited marital deduction, as long as the spouse is a U.S. citizen.
History of the Applicable Exclusion Amount / Unified Credit
Simply because it’s interesting, let’s take a look at the historical exclusion / unified credit amounts and top tax rates over the years.
Notice 1. Historically, the amount of the exclusion / credit (adjusted for inflation to 2025 dollars) before 2018 has never been close to $15 million, and 2. How much the top tax rate has varied over the years, from just 10% in 1916 to an incredible 77% from the 40s to the 70s.
2011-Present: Applicable Exclusion Amount
Starting in 2011, the “applicable exclusion amount” amount combined exemptions for federal estate taxes, lifetime gift taxes, and GST taxes, just as it does today after the OBBB.
| Year of Death: | Applicable Exclusion Amount: | Top tax rate: |
| 2026 | $15,000,000 | 40% |
| 2025 | $13,990,00 | 40% |
| 2024 | $13,610,000 | 40% |
| 2023 | $12,920,000 | 40% |
| 2022 | $12,060,000 | 40% |
| 2021 | $11,700,000 | 40% |
| 2020 | $11,580,000 | 40% |
| 2019 | $11,400,000 | 40% |
| 2018 | $11,180,000 | 40% |
| 2017 | $5,490,000 | 40% |
| 2016 | $5,450,000 | 40% |
| 2015 | $5,430,000 | 40% |
| 2014 | $5,340,000 | 40% |
| 2013 | $5,250,000 | 40% |
| 2012 | $5,120,000 | 35% |
| 2011 | $5,000,000 | 35% |
1977-2010: Unified Credit
From 1977 to 2010, the “unified credit” was used, which was the total exemption amount for federal estate taxes and lifetime gift taxes. The GST tax was introduced in 1976 but had its own separate limits.
| Year of Death: | Unified Credit Amount | Adjusted for inflation to 2025 dollars (rounded): | Top tax rate: |
| 2010* | $5,000,000* | $7,330,000 | 35% |
| 2009 | $3,500,000 | $5,250,000 | 45% |
| 2008 | $2,000,000 | $3,000,000 | 45% |
| 2007 | $2,000,000 | $3,140,000 | 45% |
| 2006 | $2,000,000 | $3,200,000 | 46% |
| 2005 | $1,500,000 | $2,500,000 | 47% |
| 2004 | $1,500,000 | $2,570,000 | 48% |
| 2003 | $1,000,000 | $1,750,000 | 49% |
| 2002 | $1,000,000 | $1,800,000 | 50% |
| 2001 | $675,000 | $1,200,000 | 55% |
| 2000 | $675,000 | $1,270,000 | 55% |
| 1999 | $650,000 | $1,260,000 | 55% |
| 1998 | $625,000 | $1,230,000 | 55% |
| 1987-1997 | $600,000 | $1,200,000-$1,700,000 | 55% |
| 1986 | $500,000 | $1,500,000 | 55% |
| 1985 | $400,000 | $1,200,000 | 55% |
| 1984 | $325,000 | $1,000,000 | 55% |
| 1983 | $275,000 | $890,000 | 60% |
| 1982 | $225,000 | $760,000 | 65% |
| 1981 | $175,000 | $640,000 | 70% |
| 1980 | $161,000 | $660,000 | 70% |
| 1979 | $147,000 | $680,000 | 70% |
| 1978 | $134,000 | $681,000 | 70% |
| 1977 | $120,000 | $650,000 | 70% |
*2010 was unusual. For most of the year, there was no federal estate tax, as a 2001 tax law repealed it for the year 2010. In December 2010, Congress passed a law retroactively reinstating federal estate tax above the exemption amount of $5 million with a 35% top tax rate. Executors/personal representatives had a choice to opt in to the $5 million limit or opt out and use carryover basis rules.
1916-1976: Estate Tax Exemption
Prior to 1977, the federal estate tax had its own exemption amount. The gift tax was not introduced until 1932, and had its own separate exemption.
| Year of Death: | Federal Estate Tax Exemption Amount | Adjusted for inflation to 2025 dollars (rounded): | Top federal estate tax rate: |
| 1942-1976 | $60,000 | $343,800- $1,200,000 | 77% |
| 1941 | $40,000 | $900,000 | 77% |
| 1940** | $40,000 | $910,000 | 70%** |
| 1935-1939 | $40,000 | $908,000-$930,000 | 70% |
| 1934 | $50,000 | $1,200,000 | 60% |
| 1933 | $50,000 | $1,230,000 | 45% |
| 1932 | $50,000 | $1,110,000 | 45% |
| 1926-1931 | $100,000 | $1,780,000-$2,000,000 | 20% |
| 1925 | $50,000 | $918,000 | 40% |
| 1924 | $50,000 | $918,000 | 40% |
| 1918-1923 | $50,000 | $945,000- $1,135,000 | 25% |
| 1917 | $50,000 | $1,360,000 | 25% |
| 1916 | $50,000 | $1,530,000 | 10% |
**In 1940, a 10% surtax added on the total tax liability to raise funds for wartime, which increased the top rate from 70% to an effective rate of 75.4%, according to the IRS.
Data taken from the IRS Estate Taxes page, IRS publication “The Estate Tax: Ninety Years and Counting” (for years 1916-2007), and IRS publication 950 (Rev. October 2011).
In the past, many more families were affected by federal estate taxes, lifetime gift taxes, and GST taxes. Now that the exclusion amount is $15 million/$30 million, most families in America do not have to factor it into their estate planning.
Estate Planning in South Carolina
For help with wills, trusts, and more, call Gem at the Gem McDowell Law Group. Gem and his team help individuals and families in South Carolina create the customized, comprehensive estate plans they need to protect their interests and provide peace of mind. Call today to schedule your free initial consultation at (843) 284-1021.
