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Abstract: The Tax Court teaches the "do's and don'ts" of FLPs through its step-by-step explanation of section 2036 and its application of that statute to the facts of Erickson, a recent decision.
family limited partnership, FLP, estate planning, estate tax, section 2036, Erickson, valuation, discount, bona fide sales
Abstract: Sometimes a case offers practice pointers: Hurford is one such case. Besides explaining what not to do (that is, what was actually done in the case), the Tax Court continually commented on what the decedent and her family might have done to improve their chances of success. The taxpayers in this case attempted to use family limited partnerships (FLPs) and a private annuity to reduce gift and estate taxes.
family limited partnership, FLP, private annuity, Hurford, gift tax, estate tax, estate planning
Abstract: This article discusses Linton, a district court decision about a family limited liability company, indirect gifts, and the step transaction doctrine.
Family LLC, indirect gift, nonmarketability discount, step transaction doctrine, Linton
Abstract: Miller is a decision on family limited partnerships (FLPs) with effective line drawing. The case is particularly helpful to distinguish the types of investment activities that constitute an acceptable nontax purpose under the Bongard criteria. The opinion further provides some guidelines on the factors of age, health, and FLP payment of estate tax liabilities to determine the applicability of section 2036 and its bona fide sales exception.
FLP, family limited partnership, estate tax, Miller, section 2036, bona fide sales exception, discounts
Abstract: The article discusses Holman, a recent Tax Court decision involving the valuation of gifts of FLP interests.
Holman, FLP, family limited partnerships, valuation, indirect gift, section 2703, Shepherd, Senda, Amlie
Abstract: The article critiques the Tax Court's latest family limited partnership case, Mirowski, as well as the court's Bongard test, which is applied to determine whether or not an FLP falls within the bona fide sales exception of section 2036.
family limited partnership, FLP, Mirowski, section 2036, Bongard test, estate tax, gift tax
Abstract: In some instances when the taxpayer makes a charitable donation, the loss of revenue to the government, and the corresponding gain to the taxpayer, far exceeds the benefit to the charity. Some of these losses may be generated by government sanctioned complex transactions and even government created devices. This article proposes a new way to examine "quid pro quo" charitable gifts that reflects the rationale for the charitable deduction.The article analyzes various charitable donations in terms of the dollars gained by the taxpayer, the dollars lost by the government, and the dollars received by the charity. After considering a sliding scale of benefits to the charities in light of the revenue losses to the government and taxpayer gains, the article makes some normative conclusions about whether the good a donor does justifies his currently available tax benefits and then proposes some solutions.
charitable deduction, quid pro quo, public benefit, CLT, American Bar Endowment, McCord, conditional gift, donor advised funds, private foundation, income tax, gift tax
Abstract: The author discusses and critiques the proposed estate tax regulations dealing with postdeath events and the deduction under section 2053.
postdeath events, proposed regulations, estate tax, deduction under section 2053, claims against the estate
Abstract: The recent district court case Stone illustrates certain estate tax valuation facts unique to holding artwork.
estate tax. valuation, art collection, paintings, fractional interest discount, IRS Art Panel
Abstract: When giving both to your family and to your charity, you must follow the rules carefully to qualify for a charitable deduction. The article discusses the recent Tamulis case, other split interest charitable deduction cases, and the doctrine of substantial compliance.
charitable deduction, split interest charitable gift, substantial compliance, estate tax, Tamulis
Abstract: The author reviews many of the recent cases involving the issue of equitable apportionment of estate taxes and urges states to adopt a bright-line approach to increase the application of equitable apportionment as the default rule.
equitable apportionment, estate planning, estate taxes, trusts, wills
Abstract: Rector and Gore are two recent family limited partnership (FLP) memorandum opinions from the Tax Court. In both cases, the coveted FLP marketability and minority discounts eluded the estates.
family limited partnership, FLP, estate planning, estate tax, section 2036, Gore, Rector, valuation, discount, bona fide sales
Abstract: At least 4.4 million families in the U.S. are blended ones that include step-children and step-parents. For tax purposes, these steps receive preferential treatment for their status because they are on the one hand included as family members for many income tax benefit sections, but on the other hand excluded as family members for business entity attribution purposes and for gift and estate tax anti-abuse provisions. In the interests of fairness and uniformity, steps should be treated as family members for all tax purposes where steps have in fact voluntarily acted as their biological or adoptive counterparts, both when such treatment would decrease and increase their tax burdens.
definition of family, stepchild, stepparent, income tax, estate and gift tax, corporate tax
Abstract: Focusing on the admissibility of post-gift events, the article reviews and critiques the recent Fifth Circuit opinion in McCord.
McCord, FLP, defined value clause, postgift events, valuation
Abstract: Fair market value is defined in the section 2031 Regulations. For its validity, that definition of fair market value relies on the normal definitions of its significant terms: a seller is someone who is seeking the highest price for her product and a buyer is someone who wants to obtain the lowest price for his purchase. It is only that tension that creates the realistic, and fair, market value of that asset. Indeed, without that conflict, the definition is comprised of hollow words. In the context of family limited partnerships, terms have been misused. By utilizing the limited partnership shell, liquid assets become illiquid in order to discount those assets and to pay less transfer tax. There are already regulations in the income tax loss context that deny losses for the intentional destruction of property values. They can serve as models for Treasury to refine the fair market value definition to conform to a more realistic and public policy supported meaning of value when terms in the general definition of fair market value have gone awry.
valuation, fair market value, family limited partnership, FLP, estate tax, gift tax, section 2031
Abstract: Jorgensen provides a common FLP story with a familiar conclusion. Under section 2036, the estate did not receive those coveted FLP discounts and paid taxes on the full value of the assets transferred to their FLPs. The court presents a careful, logical, and well-reasoned decision that should provide guidance in the FLP area to taxpayers.
Jorgensen, FLP, family limited partnership, estate tax, discounts, section 2036
Abstract: Portability of estate tax exemptions has been called the best estate tax planning idea for a surviving spouse since the unlimited marital deduction in 1981. This article explains portability, including the recent Senate testimony urging its adoption.
portability, estate tax, exemptions, bypass trust, credit shelter trust, marital deduction, generation skipping transfer tax
Abstract: This article discusses the recent Tax Court decision in Pierre and the effect for gift tax purposes of an entity’s classification made under the check-the-box regulations. The court was split on what those regulations mean when they state that an entity is to be disregarded ‘‘for federal tax purposes.’’
FLP, family limited partnership, Pierre, check-the-box, lack of marketability discount, minority discount, gift tax
Abstract: Although section 529, under which tax preferred college savings accounts may be established, was enacted to alleviate the large financial burden of paying for a taxpayer's family members' higher education, it has provided taxpayers with the potential for additional income, gift, and estate tax benefits unintended by the very generous statute. The government's advance notice of proposed rule making cites several of those tax avoidance schemes, proposes some solutions, and asks the public for its recommendations to curb those abuses.
college savings plans, college savings accounts, section 529, income tax, gift tax, estate tax, tax avoidance, tax abuse
Abstract: Hester concerns the inclusion of stolen property in the wrongdoer's estate.
stolen property, wrongdoer's estate, estate tax, section 2031, section 2033, section 2053, claims against the estate, QTIP
Abstract: The author analyzes the recent Gross case in which the taxpayer made gifts of stock to her children through an FLP.
FLP, family limited partnership, gift tax, indirect gift, Gross, Holman, Jones, Shepherd, step transaction doctrine, economic risk
Abstract: In Gerson, the Tax Court upheld the government's regulation regarding the grandfather exception to the generation-skipping transfer tax and held that the decedent's exercise of a general testamentary power of appointment in 2000, granted under a trust created by her husband at his death in 1973, was subject to the GSTT. The article reviews the decision and the plain meaning of the grandfather exception to the GSTT.
Gerson, GST, GSTT, generation-skipping, plain meaning, transfer tax
Abstract: A South Dakotan attorney who had become a full-time farmer, left her entire estate to her daughter, but she anticipated that her daughter would disclaim some of that property. The article discusses the Christiansen case that examined the validity of that disclaimer as well as of a defined value clause.
estate tax, disclaimer, defined value clause, FLP, McCord, charitable lead annuity trust, CLAT, savings clause
Abstract: In this second article on the Fifth Circuit's opinion in McCord (the first is at http://ssrn.com/abstract=939538), the author discusses the gift tax reduction attributable to the donees' assumption of the donors'/decedents' potential section 2035 liability.
McCord, gift tax, estate tax, tax affecting, section 2035, net gift
Abstract: The estate of legendary puppeteer Jim Henson encountered some problems when it tried to deduct amounts paid to Henson's estranged wife under a separation agreement as a claim against the estate.
section 2053, claim against the estate, postdeath events, estate tax, puppeteer, Jim Henson, separation agreement
Abstract: The article discusses the Ninth Circuit's recent Bigelow case. The issues on appeal were: 1) whether the Tax Court erred in its finding that there was an implied agreement of income retention from the property the decedent transferred to her FLP, and 2) whether the Tax Court erred in its holding that the transfer did not constitute a bona fide sale for adequate and full consideration,exempting it from section 2036.
FLP, estate planning, estate tax, section 2036, Bigelow, valuation, discount, bona fide sales
Abstract: Senda illustrates what happens when the taxpayers do not respect the formalities of an FLP as well as the required sequence of transfers and documentation.
gift tax, valuation, FLP, family limited partnership
Abstract: The Ninth and the Second Circuits affirmed the Tax Court decision in Janis but based their respective decisions on different rationales.
estate tax, section 1014, basis, Janis, duty of consistency
Abstract: Kelly is an FLP success story.
FLP, estate tax, lack of marketability discount, minority discount
Abstract: Under either the Bongard majority's test or a business or economic analysis test, Bigelow and the two Korby opinions would likely be decided the same way. They involved clearly testamentary transfers where the assets of the FLP were intended to be, and were in fact, used for their respective decedents' lifetime needs.On the other hand, Schutt, which was decided in the taxpayer's favor under the application of the Bongard majority's nontax motive test to unique facts, would likely have been decided differently under a business purpose test or economic analysis. Despite Schutt's nontax motive of restricting the trusts' terms, the bottom line is that in Schutt the taxpayer did what the taxpayer in Turner did. He was not operating a business and he converted liquid assets into illiquid ones. Objectively, Schutt transferred assets to an FLP for a limited partnership interest that was worth less than the value of his transferred assets. Because the transfers were not in the ordinary course of a business, he should not have been able to take advantage of the presumption that the transfer constituted an economic equivalence. Section 2036 excepts only a bona fide sale for an adequate and full consideration in money or money's worth so that the decedent's estate is not diminished. Under a traditional economic analysis, therefore, the value of the assets that Schutt transferred to his FLP should have been included in his gross estate under section 2036.
FLP, Bongard, Schutt
Abstract: Anthony v. United States is the most recent circuit court ruling on the section 7520 mandate to use the actuarial tables to value annuities in the decedent's estate. The article discusses Anthony as well as the lottery cases (Shackleford, Gribauskas, and Cook).
Estate Tax, Actuarial Tables, section 7520, Anthony, Shackleford, Gribauskas, Cook, section 2039
Abstract: Treasury recently announced proposed regulations under section 2032 explaining valuation rules for assets when the decedent elects to apply the alternate valuation date. The regulations first provide background information about the statute, including legislative history and case law interpretation, and then underline their departure from Kohler, a 2006 Tax Court memorandum decision.
estate tax, alternate valuation date, section 2032, regulations, Kohler
Abstract: It is somewhat difficult to anticipate when a court will reform a trust to conform to a testator's intent to qualify for the marital deduction. With this in mind, the author compares the recent Ninth Circuit case Davis to the recent Tax court opinion in Whiting.
marital deduction, QTIP, Davis, Whiting
Abstract: Last spring the IRS issued Rev. Proc. 2005-24, applicable to the qualification of inter vivos charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs) when the surviving spouse can satisfy her statutory elective share from the assets of a charitable remainder trust (CRT). The revenue procedure was intended to provide a safe harbor rule under which the IRS would ignore the elective right in its determination of a trust's qualification and continuation as a CRT. The article analyzes the revenue procedure, examines the policies behind both CRTs and the UPC elective share, and suggests that the revenue procedure is under-inclusive in its focus and looks to the wrong individual for a remedy.
Rev. Proc. 2005-24, Notice 2006-15, CRAT, CRUT, CRT, UPC Elective Share, Spousal Share, charitable deduction
Abstract: The Fifth Circuit applied res judicata in Davenport and the gift tax on 1980 gifts may finally be paid. The article details a long history of litigation culminating in this case.
gift tax, estate tax, res judicata, collateral estoppel, transferee liability, valuation
Abstract: The problem, here, with accepting successive spousal interests is not that a dual life interest is any more contingent or unreliable a term measurement than a single life interest, which is acceptable under the regulations. Rather, the difficulty is produced by the fact that the spousal interest is contingent on the grantor's power to revoke, which, controllable by the grantor, may make that interest an illusionary one. The regulations treat a revocable spousal interest as the grantor's interest as if it were identical to the grantor's life interest. While one can reason that because a grantor's revocable power becomes irrevocable at his death, the term is actually for the grantor's life; inevitably, however, it is that departure from the general rule against contingencies that undermines the rationale for the prohibition against contingencies and causes the distinctions later drawn to be somewhat capricious.
GRATs, 2702, Gift Tax Regs., valuation, Schott
Abstract: The article discusses Negron and the circuit split on the issue of whether to value non-assignable lottery payments in a decedent's estate by means of the actuarial tables or whether that value needs to be discounted for non-marketability.
estate tax, Negron, lottery payments, non-marketability discount, valuation, Ithaca Trust
Abstract: Despite restrictions on marketability, lottery payments included in a decedent's estate must be valued by the actuarial tables and without a marketability discount. They must be valued by the actuarial tables because: (1) Congress said so (section 7520); (2) the Supreme Court said so (Ithaca Trust); and (3) the values under the tables in the cases are not "so unrealistic and unreasonable" to necessitate, under either case law or the regulations, an exception from their application. Section 7520 requires the sole use of the tables to value annuities and partial interests in property and no exceptions pertinent to the lottery cases are found in the statute, regulations, or prior case law. If there were no statute, regulations, or prior case law, logically one would still need to acknowledge that the value of a nonmarketable sure thing like lottery payments should not be much less than the present value of those winnings. That means their value cannot be "wildly unrealistic" or "substantially unrealistic and unreasonable" as compared to their value computed under the tables.
Donovan, Davis, Lottery, Estate Tax, Valuation, Annuities
Abstract: Both Turner and Glass provide useful commentary on the requirements a taxpayer must satisfy to qualify for a conservation easement charitable deduction or the estate tax conservation easement exclusion. Because of the increased popularity of conservation easements, as well as the heightened IRS examination of these transfers, both cases provide a welcome judicial gloss on this tax benefit.
conservation easement, charitable deduction, estate tax, gift tax, income tax, estate planning, Turner, Glass
Abstract: The article reviews the history of the tax treatment of charitable split interest gifts, explains the inequities that Congress both cured and generated in its 1969 reforms, and proposes solutions that are consistent with the goals of the 1969 legislation. The article discusses variations in the 1969 definition of a charitable split interest, which, because of the enacted statutory language, applies in instances where there is no abuse potential. The inequity produced by that definition penalizes the donor and flouts the rationale behind the 1969 legislation. By contrast, the creation of some required statutory forms of charitable split interests in trust, enacted to prevent abuse, have themselves created new opportunities for donors to evade taxes in ways unanticipated by the 1969 Act. In the spirit of the 1969 law, the article makes several recommendations, including proposals: (1) to modify the statutory definition of charitable split interest to provide an exception from the statutory requirements where there is no statutory mandate to calculate value by means of the actuarial tables under section 7520 and no abuse potential; and (2) to eliminate, or to restrict the tax avoidance aspects of, some of the charitable split interest in trust devices created in the 1969 legislation.
charitable deduction, split interest, charitable remainder trust, charitable lead trust, 1969 Tax Reform Act, philanthropy, estate tax, gift tax, income tax
Abstract: In Buder, in a refund action by the widow's estate for overpayment plus interest owing to its erroneous inclusion of a purported QTIP trust, the Eighth Circuit, affirming the district court, agreed that the government was entitled to the defense of equitable recoupment for unpaid estate taxes in the husband's estate because of that faulty QTIP election and allowance of a marital deduction. However, the appellate court, like the lower court, first discounted that amount to reflect that others - a charity and a daughter - who were not parties to the litigation and who were not beneficiaries of the trust, would have borne some of the husband's estate tax liability. Likewise, the Eighth Circuit denied the government interest on the equitable recoupment because of the particular circumstances of the case - that the government knew of the erroneous QTIP election and could have timely recovered the husband's estate tax deficiency. The district court rejected the government's proffered authorities, E.I. du Pont and Rogers, as guidance on the issue of interest on an equitable recoupment. In E.I. du Pont, the Claims Court allowed the government to offset interest on the taxpayer's income tax deficiency for 1942 against the taxpayer's refund for interest paid on excess profits taxes deferred for that year. In Rogers, in an action by both parties for costs, which the court rejected, the court said, Nonetheless, on an alternative theory of recovery, which plaintiffs asserted to support their alternative claim, the court awarded plaintiffs $288,884 plus interest under the doctrine of equitable recoupment. Neither case discussed the issue of awarding interest on an equitable recoupment. Neither, however, did the Eighth Circuit in IES Industries, the case on which the district court in Buder relied. If preventing unjust enrichment is the essence of the equitable recoupment defense, interest should be paid on those amounts to reflect the actual benefit the Buder sons received by not having the trust taxed in the husband's estate, as it should have been. However, if the government's culpability is a factor favoring a limited application of equitable recoupment, as the Eighth Circuit held, as a way of restricting the defense in Buder, it may not be unfair to deny the Government interest on the amount recouped.
equitable recoupment, QTIP, marital deduction
Abstract: The Tax Court held in Roski that the government's imposition of certain pre-requisites for closely held businesses and farms to seek estate tax relief was an attempt by it to legislate. Was it? Within the context of closing the tax gap, it may not be.
estate tax, Roski, closely held business, farm, section 6166, lien, tax gap
Abstract: This Article discusses Ithaca Trust and that case's emphasis on the integrity of actuarial tables for estate tax valuation purposes. The author argues that application of actuarial table values for estate tax valuation is the best means to value estates where use of tables is mandated, despite recent decisions that have allowed admission of facts to alter the valuation of property where actuarial table values should have applied.
Abstract: This article discusses the recent Focardi Tax Court opinion that denies grantor retained annuity trust (GRAT) qualification for a grantor's retained interest with a revocable spousal interest contingent on both the grantor's death within the term and on the grantor's decision not to revoke his spouse's interest. Because of the disqualification, the grantor's retained interest can not reduce the value of his gift for gift tax purposes. In so ruling, the Tax Court re-iterated its position in Cook and explicitly rejected the Ninth Circuit's opinion in Schott. The article, however, explains why by allowing a contingency within the grantor's control but by disallowing a contingency outside his power, the regulations undermine the prohibition against contingencies and why, within this context, Schott makes more sense than Cook.
GRAT, 2702, valuation, gift tax, Focardi, Cook, Schott
Abstract: The marital deduction provisions suggest a unique application of the rule of consistency. The deduction provides only the benefit of deferral and only on the rationale that the actual transfer occurs at the termination of the marital unit, that is, at the surviving spouse's death. The statute of limitations that begins to run at the death of the first spouse to die has little importance when viewed from that perspective. Moreover, the policy suggesting a very limited exception to the finality of the statute of limitations88 has no application to the marital deduction situation, because there is statistically a likelihood that the unit will survive more than three years from the death of the first spouse to die. The duty of consistency that requires the surviving spouse's estate to retain the same position as the first spouse's estate is clearly reasonable in that context and the courts should liberally apply it.
marital deduction, duty of consistency, 2056
Abstract: The author discusses the marriage penalty and proposes some solutions.
marriage penalty, income tax, two-earner couple
Abstract: If decedent can possess property on the happening of an event that has not occurred at his death, should that contingent property interest, properly discounted to reflect that risk, be included in his estate? If decedent's death extinguishes a contingent interest that he created, should anything be included in his estate to reflect the testamentary nature of the transfer? Should a different rule apply where the decedent has created a contingency for non-tax reasons? How should remote contingencies be taxed?
The article, Contingencies and the Estate Tax, reviews the current treatment of contingent interests for estate tax purposes. That treatment varies according to what Code section is applicable and varies in terms of rules dictated by the statute, regulations, and the courts. Under different estate tax Code sections, contingent interests, alternatively, are included in decedent's estate at the full value of the property without regard to the contingent nature of decedent's interest, are excluded altogether, or are included at a discounted value to reflect risk of loss or nonpossession.
The article suggests two rules be applied to taxing contingent interests and powers in decedent's estate. First, contingent interests created by third parties should be taxed at a value that reflects the risk of loss or non-possession (a mathematical rule). Second, in order to encourage simple, completed transfers, decedent-created and retained contingent powers and interests should cause the full value of the property to be included in decedent's estate. These decedent-imposed contingencies complicate a transfer tax system and invite abuse. Under either rule, but particularly under the second rule, de minimis exceptions should be eliminated.
Abstract: The article discusses the way in which Kimbell and Turner discuss their respective precedents,Wheeler and D'Ambrosio. Wheeler and D'Ambrosio are the Fifth and the Third Circuit's cases that are ostensibly on the same side of an older debate with the Claims Court's decision in Gradow about the valuation equivalence of partial property interests within the context of the bona fide sale exception of section 2036. While Wheeler and D'Ambrosio seem to draw the same conclusion on what constitutes adequate and full consideration in money or money's worth for section 2036 purposes, Kimbell and Turner are not as in sync on that issue as they first appear. Moreover, while Wheeler and D'Ambrosio look as if they are identical interpretations of the adequate and full consideration exception of section 2036, they may have essential differences that initially were not visible.
FLPs, 2036, Kimbell, Wheeler, Turner, D'Ambrosio
Abstract: In 1981, Congress enacted the qualified terminable interest property (QTIP) provisions that allow an estate and gift tax marital deduction for the full value of the underlying property where a spouse receives only a qualifying income interest for life and where the executor of the estate or the donor spouse makes a timely election. The article reviews the history of the marital deduction and its evolved rationale, explains and analyzes the current QTIP provisions together with their supposed comity with the decision to adopt the marital unit as the proper unit of transfer taxation, illustrates how the QTIP demeans women, and proposes that Congress repeal the QTIP provisions.
QTIP, marital deduction, demeans women, qualfied terminable interest property, section 2056
Abstract: In Amlie, the Tax Court held that the 1995 family settlement agreement (FSA) satisfied both the pre-section 2703 case law requirements as well as the additional requirements of the statute. While the Tax Court may well be correct in its conclusion that the 1995 FSA price was a fair one, there are some troubling aspects to the case.
Valuation, 2703, Estate Tax, Amlie, Blount, Family Discord
Abstract: Recently, in Saigh v. Commissioner, the petitioner argued that, while conceding transferee liability up to the value of the property transferred to her from the decedent's estate, she was not liable for interest on that amount running from the estate tax return's due date. She also contended that, because all significant events occurred in New Jersey, despite the fact that she resided in Florida when she filed her petition, the applicable precedent was that of the Third, rather than the Eleventh, Circuit. (Of course, she made the latter argument because the Eleventh Circuit in Baptiste v. Commissioner held in the government's favor on that issue while the Third Circuit in Poinier, although a gift tax case, would at least arguably cause a court to rule in her favor.)
Saigh, transferee liability, estate tax, Baptiste, Poinier
Abstract: The article argues for a limited tax credit for child support and alimony.
Child Support, Alimony, Tax Policy, Tax Credit, Income Tax, Divorce, Family Law
Abstract: Professor Zelenak and I agree on one half of my thesis: that the QTIP provisions are illogical and do not serve their purported policy goal. They were based on the premise that a married couple acts as a unit about "their" property and, quite obviously, they were motivated by the fear that in fact husband and wife do not. However, he disagrees with the other half of my thesis: that the QTIP provisions are degrading to women, sexist, and financially a bad deal for widows. While he would like to separate these two ideas, the sexism of the statute is, to a large degree, intertwined with its illogic. The QTIP provisions are degrading to women and sexist for two reasons: (1) they treat women as the invisible member of a marital unit; and (2) they implicitly equate giving an income interest to women with giving them the property itself.
The article elaborates on the author's disagreement with Professor Zelenak.
QTIP, qualified terminable interest property, marital deduction, sexist, degrading women, estate tax, gift tax, transfer tax
Abstract: In this article, I elaborate on three solutions to the illogical and sexist QTIP provisions. Solution #1 is to require the surviving spouse be the one who can make the QTIP election; Solution #2 is to repeal the QTIP provisions, but modify the terminable interest rule. Solution #3 is to repeal the QTIP provisions, but retain the unlimited marital deduction.
The first of these solutions involves the smallest change in the current rules: the surviving spouse, and not the donor or executor, should be the one empowered to make the QTIP election. That one change in the QTIP provisions would make the marital deduction more reflective of a joint decision about "their" property, would eliminate some of the conflict of interest issues inherent in promoting the use of a QTIP, particularly where the executor is decedent's child from an earlier marriage, and is a more politically acceptable solution to repealing the QTIP, an extremely popular estate planning device.
The second solution is to repeal the QTIP, but modify the current terminable interest rule. This solution gives the decedent a marital deduction in the amount equal to what she actually receives as her income interest. Code sections 2702 and 2056(b)(5) provide a framework to draft a statute that would ensure that the widow would receive the sum certain stated on her husband's estate tax return. While paternalistic in its acceptance of a deduction for transfers of a life estate, this solution would at least require that the value of the marital deduction reflect the value of the lifetime benefit that the widow actually will receive so that she can make a more informed decision about choosing to elect or forgo her statutory share.
The third solution is the optimal one. The QTIP should be repealed; pre-1982 marital deduction rules should be restored, except for the unlimited marital deduction, which should be retained to the extent the decedent (or donor) actually leaves property to his widow (wife). While passage of the unlimited marital deduction was initially inextricably tied to the passage of the QTIP, the link may not be required in today's climate of family values. It is unlikely that, even if the QTIP provisions were repealed, Congress would want to repeal the unlimited marital deduction.
QTIP, qualified terminable interest property, marital deduction, sexist
Abstract: The article reviews Estate of Clack v. Commissioner. First, the article explains how that case was wrongly decided both in terms of the statute and in the fact that it is inconsistent with most tax elections and determination dates. Second, the article shows how this case adds insult to injury to the "women-deserve-only-income" attitude of the QTIP provisions. Third, the article explains the lack of a justifiable policy goal in giving a special tax break to remarried men with children from an earlier marriage. Fourth, the article explains how Clack has created a multitude of fiduciary liability problems when an executor makes an election under these circumstances.
Estate of Clack, QTIP, qualified terminable interest property, marital deduction, demeans women
Abstract: It is the purpose of this comment to explore a hypothetical situation, to take the facts of the Quinlan case as revealed in the New Jersey Superior Court and the New Jersey Supreme Court opinions and interpret them under applicable Ohio law.
Quinlan, legal definition of death, physician's duty of care, extraordinary medical care, physician's liability, incompetency, right to privacy, consent
Abstract: In a practice article, Wendy C. Gerzog, a visiting professor at Seattle University School of Law, looks at a recent case dealing with the estate tax valuation of non-publicly-traded stock.
Abstract: In a practice article, Wendy C. Gerzog, a professor at the University of Baltimore School of Law, analyzes the Okerlund and Polack gift tax cases.
Abstract: Wendy C. Gerzog reviews the Fifth Circuit's opinion in Estate of Strangi, reversing and remanding it to the Tax Court, and suggests that the government might want to argue the applicability of Eisenberg v. Commissioner instead of United States v. Byrum.
Abstract: Professor Wendy C. Gerzog argues that three appellate cases involving the valuation of an estate tax deduction incorrectly cited Ithaca Trust Co. v. United States and clarifies that the case applies only to valuation based on the mandated use of actuarial tables.
Abstract: With the gift tax serving only as a backstop for the income tax in the event of estate tax repeal, Congress needs to reexamine current distinctions between complete and incomplete gifts. Otherwise, in 2010, lifetime transfers will be taxed more severely than testamentary ones even where they are virtually indistinguishable in terms of retained control. The best solution is, of course, to eliminate estate tax repeal; however, if estate tax repeal does in fact occur, all attempted gifts should be treated as completed gifts of the full value of the underlying property. By serving as a prepayment of income tax in this way, the gift tax would more effectively serve its sole remaining purpose. It would also eliminate the need for both the grantor trust rules (excepting perhaps section 676) and the newly enacted section 2511(c).
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