Recent Developments

The IRS has sought to prevent taxpayers from restructuring a business post-death and using a lower alternate valuation date value (valuing assets 6 months after death instead of at death), and to then game the estate tax system. The prior proposed regulations described events that would be ignored for estate valuation purposes. New regs identify events that will accelerate the asset valuation date prior to what would otherwise be the six month alternate valuation date. Exceptions for transactions that occur in the "ordinary course of business" that don't change the business ownership structure, are provided.

◙   The power to acquire a life insurance policy in non-fiduciary capacity from a trust, so long as the trustee can require the determination of an appropriate value, will not cause estate inclusion under IRC Sec. 2042. 2011-28.

◙   Mom set up a 3 year QPRT. At end of the QPRT term she should have moved out or paid rent. The children said mom intended to pay rent but just hadn't gotten around to getting a lease or actually paying. But mom died before year end. Mom had even paid house expenses post QPRT termination. Somehow the QPRT was upheld by the court. Estate of Riese. This result was pulling a rabbit out of the proverbial audit hat. Don't count on it.

◙   Taxpayer made a transfer using a defined value clause that would cause any increase in value on a tax audit to be paid to a charity. The charity, a donor advised fund, had independent counsel and engaged an independent appraisal. Hendrix. Defined value clauses are not simple or assured.

◙   The step transaction doctrine can be used by the IRS to torpedo all sorts of estate plans. If you discussed with your advisers setting up a trust and making gifts before the $5 million exemption changes. Then you formed an LLC and transferred assets to an LLC. After that you make a gift of LLC interests to the trust. If the IRS can demonstrate that this was all part of one integrated plan, and each step is dependent on the others, any discount on the LLC interests will not be realized. Linton.