Posts Tagged ‘Estate planning’

You mean you’re supposed to do the estate planning before the client dies?

Thursday, May 3rd, 2012 by Joe Kristan

I’ve often suspected this sort of thing happens, but I’ve never seen it caught.  A Cincinnati lawyer, Suzanne Land,  has pleaded guilty to charges arising from drafting estate planning documents with the benefit of hindsight.  From a Department of Justice Press Release:

Land, who until recently was a partner at a Cincinnati law firm, admitted in court documents that from January 2010 through July 2010 she actively obstructed and impeded the IRS during two separate civil audits her clients’ estate tax returns.    

According to the plea agreement and statements made in court, to conceal from the IRS the deficiencies in the documents that she drafted for her wealthy clients, Land forged the posthumous signatures of both her deceased clients and their living children on amendments to the documents.  

Like any good attorney, she apparently also tended to her billing responsibilities:

Land also misled an appraiser as to the value of the estates, created fake legal invoices that reflected work she never performed, and lied to the IRS about the circumstances surrounding the creation of the amendments.  

Fake work, fake invoice.  What’s the problem?  You wouldn’t want her to issue a real invoice for that, would you?

UPDATE, 5/4: a more sympathetic view from Jack Townsend.


IRS loses farm ‘special use valuation’ case (again)

Monday, March 26th, 2012 by Joe Kristan

Roger McEowen has the scoop.


It’s not just farmers that make these mistakes

Thursday, March 8th, 2012 by Joe Kristan

Paul Neiffer discusses “Top Estate Planning Mistakes Farmers Make,” but his points are hold for anybody with a small business or substantial assets. The biggest mistakes are things you fail to do, so get on it!


IRS extends deadline for ‘portability’ election for 2011 deaths

Monday, February 20th, 2012 by Joe Kristan

You can’t file joint estate tax returns, for reasons that are obvious on a moment’s reflection. Because each spouse gets a lifetime exemption from estate tax, couples with estates over the exemption amount have tried to make sure each spouse has enough assets to use their exemption.
The estate tax enacted for 2011-2012 makes life simpler for these couples by allowing estates to elect to carry any unused exemption to the surviving spouse. You make the election on the dead spouses estate tax return.
That’s great, but what if you don’t realize you need the exemption. It’s easy to imagine situations where a surviving spouse comes into a fortune and really wishes she had filed that Form 706. It’s just as easy imagining a lawsuit against the executor who had only the deceased’s double-wide to probate from the surviving spouse who wins the Powerball.
The trap is still there, but the IRS last week gave estates extra time to avoid it, even if they didn’t extend their estate tax return. From the TaxProf: IRS Extends Deadline to File Estate Tax Portability Election ?
Link: IR-2012-24


Estate Planning for 2012

Friday, January 6th, 2012 by Joe Kristan

Roger McEowen has some worthwhile thoughts.


Why you should file that unneeded estate tax return

Wednesday, November 30th, 2011 by Joe Kristan

It seems odd. With the estate tax exclusion at $5 million — higher than ever — why is the IRS bracing for a flood of estate tax returns? Roberton Williams explains at TaxVox:



Will they slash the gift tax exclusion next week?

Tuesday, November 15th, 2011 by Joe Kristan

Rumors are flying around that the “Supercommittee” will slash the lifetime gift tax exclusion from $5 million to $1 million effective November 23, as Paul Singleton notes. Should we panic?
I doubt the rumors are correct. Any tax package coming out of the SuperDuperCommittee will be part of a bigger deal, and that doesn’t seem close.
The lack of specifics about any other piece of the tax puzzle also makes me doubtful. These things don’t happen by themselves. The gift tax thing would almost have to be part of a larger deal involving the estate tax, and no rumors have emerged about that.
So there’s no reason to panic. Still, if you have a gift ready to go that would use some of the lifetime exclusion over $1 million, it sure wouldn’t hurt to get it completed by next Tuesday.


Getting the family partnership all wrong

Thursday, November 3rd, 2011 by Joe Kristan

Many wealthy families use family partnerships as part of their estate planning. A minority interest in a family partnership is worth less than the value of the underlying assets because a third-party buyer would not pay full value for assets controlled by somebody else. When the tax law respects this discount, it can reduce estate and gift taxes. But you have to do it right. If not, the tax law ignores the partnership and includes its assets in the contributing partner’s taxable estate.
Paul Liljestrand was born in Waterloo, Iowa in 1911. He didn’t linger. He went to China with his parents when he was four, and eventually settled in Hawaii after becoming a physician. He apparently had a successful enough career that he needed to do some estate planning. When well into his 80s he formed the Paul H. Liljestrand Partners Limited Partnership (PLP). But the execution went awry.
What went wrong? According to the Tax Court:
-Nobody told the tax preparer that there was a partnership at first, and so no partnership return was prepared for its first two years.
– Dr. Liljestrand contributed so much of his net worth to the partnership that he didn’t have enough other assets to live on. As a result, he used the partnership assets to pay his living expenses.
– There was only one meeting of the partners between its formation in 1997 and the taxpayer’s death in 2004.
– They didn’t treat the partnership in a businesslike way. Partners withdrew cash without executing loans and without formal action or documentation.
– The estate failed to convince the Tax Court that there was any non-tax reason for the partnership.
These are all bad facts. The judge decided that the partnership should be included in the taxpayer’s estate (my emphasis):

The record is devoid of any significant change in Dr. Liljestrand’s relationship with the assets before his death. Dr. Liljestrand received a disproportionate share of the partnership distributions, engineered a guaranteed payment equal to the partnership expected annual income, and benefited from the sale of partnership assets. The objective evidence points to the fact that Dr. Liljestrand continued to enjoy the economic benefits associated with the transferred property during his lifetime. With regards to Dr. Liljestrand’s motivation for forming PLP, Dr. Liljestrand was concerned with the disposition of his property after death. The estate claims he wanted to protect the property from partition and guarantee Robert’s management of the property after his death. These motives are primarily testamentary in nature. The objective and subjective evidence lead to a conclusion that the partnership was simply a vehicle for controlling Dr. Liljestrand’s property after his death.
In summary, we are satisfied that PLP was created principally as an alternate testamentary vehicle to the trust. Taking this feature in the light of all the factors discussed above, we conclude that Dr. Liljestrand retained enjoyment of the contributed property within the meaning of section 2036(a).

As a result, the Tax Court upheld a $2,573,171 assessment of additional estate tax.
The Moral? If you are going to use a family partnership for estate planning, you need to do it right. You want to have a non-tax use for it. You need to respect the formalities, including documentation of activity, maintaining a bank account, and following the partnership agreement. And you can’t use it for all of your assets. If you don’t leave enough assets outside the partnership to finance your lifestyle, you pretty much guarantee that your estate plan will fail.
Cite: Estate of Paul H. Liljestrand, T.C. Memo. 2011-259.


How much can you give away to your family without paying gift tax?

Wednesday, September 28th, 2011 by Joe Kristan

The limits now: $13,000 per year per donee, plus (through 2012) $5 million lifetime exclusion. Paul Neiffer has more at Farm CPA Today.


Gee, Dad, I really love you, but I could sure use your cash

Tuesday, September 6th, 2011 by Joe Kristan

Mom and Dad want to split their estate evenly among the kids, but one of the kids really needs the cash now, with Mom and Dad still inconveniently breathing. Joel Schoenmeyer discusses this problem at Death and Taxes.


IRS loses another ‘defined value’ gifting case

Friday, August 5th, 2011 by Joe Kristan

Just because the IRS hates something doesn’t mean it can’t work. The IRS hates “defined value” gifts. In these deals, a donor makes a gift — either a charitable gift or a gift as part of an estate plan — of property, typically shares of closely-held stock. As part of the gift, the donor states an agreed value for the gift; the donor also agrees to add enough shares to the donation to get to that value if the IRS reduces the share value on examination.
The IRS hates these because if it wins a valuation argument on examination, there is no deficiency; the charity is still entitled to the same value of donation, just split over more shares.
The Eighth Circuit, which covers Iowa, has upheld these clauses. Now the Ninth Circuit, which covers California and other Western states, has upheld such a clause. From the opinion:

Absent the audit, the foundations may never have received all the units they were entitled to, but that does not mean that part of the Taxpayer’s transfer was dependent upon an IRS audit. Rather, the audit merely ensured the foundations would receive those units they were always entitled to receive.

Victory for taxpayers. These formula clauses are likely to become a standard planning tool now that they have been approved by the Tax Court and two appellate courts.
Cite: Estate of Anne Y. Petter, CA-9, No. 10-71854 (8/4/2011)


Is estate planning a manly art?

Friday, June 3rd, 2011 by Joe Kristan

A Forbes article says that the estate planning world is a boys club, with baneful consequences for the girls. Joel Schoenmeyer isn’t so sure.


‘Palimony’ may be deductible claim for estate tax purposes

Wednesday, February 23rd, 2011 by Joe Kristan

The TaxProf reports that the Ninth Circuit Court of Appeals has ruled that payments to an estranged live-in girlfriend under a “Palimony” suit may be deductible against a decedent’s estate tax. The decision reverses a district court, which was ordered to do more factfinding to determine what amount may be deductible.
This could open the door for a do-it-yourself marital deduction for unmarried couples in the right circumstances. Roger McEowen of the ISU Center for Agricultural Law and Taxation e-mails: “Just think of the collusion that unmarried couples could accomplish!”
It’s a fun idea, but a lot of things have to fall into place:
– You have to be in a state that recognizes palimony as a cause of action.
– You need to get a palimony suit going before the one with the money is dead.
– You need to make it look good enough to sell to a judge.
All in all, it would probably be easier to get married on your deathbed, if estate tax is what you’re worried about. But that’s between you, the object of your affection, and your respective lawyers.


The two-year window for great big gifts

Monday, February 7th, 2011 by Joe Kristan

Roger McEowen on the planning implications of the so-far temporary $5 million lifetime gifting exemption:

Except for very high wealth persons, there really isn


Got $5 million to spare? Now might be the time to spare it.

Monday, January 31st, 2011 by Joe Kristan

The tax law passed at the end of 2010 extending the Bush-era tax cuts also quintupled the lifetime gift-tax exemption, to $5 million. That provision expires at the end of 2012. This could mean there is a two-year window for large family gifts. The Smartmoney Tax Blog has more.


Covering all of the Basis

Friday, January 14th, 2011 by Joe Kristan

Estate attorney Joel Schoenmeyer explains how the basis rules of the new estate tax law work:

One of the few benefits of the federal estate tax system (from the taxpayer’s POV) is that it is accompanied by a step-up in basis. In plain language, that the value of the decedent’s property as of the date of his or her death becomes its basis. Basis is no longer the cost the decedent paid for it. An example:

Mary Smith bought shares in ABC Company over 50 years, paying a total of $50,000 for the stock. At the time of her death in 2009, the shares were worth $1,000,000. At Mrs. Smith’s death, the basis for the stock became $1,000,000.

Basis is then used to compute capital gain when the property is sold. (If the ABC Company shares are sold after her death for $1,500,000, then there’s a taxable gain of $500,000 at sale. If the shares were sold by Mrs. Smith during life for $1,500,000, then the taxable gain would have been a whopping $1,450,000.)

It’s part of his series on the new estate tax rules at Death and Taxes.


2010 100% bonus depreciation, Extenders, $5 million portable gift-estate tax exemption in ‘Framework’ text

Friday, December 10th, 2010 by Joe Kristan

The Senate yesterday released legislative language for the ‘Framework’ to extend the 2010 tax rates for two years, answering some questions that have lingered since the deal was announced. As it turns out, the “Framework” is a great big grab bag solving just about all of the unanswered tax legislation problems that have been outstanding.
Some of the answers:
The bill makes clear that the “100% expensing” of business depreciable assets in the bill uses the existing “bonus depreciation” rules, so it only applies to new property — not used machinery. In a surprise, the 100% bonus depreciation applies to new assets acquired and placed in service starting September 9, 2010 through 2011. 50% bonus depreciation will again apply in 2012.
– The bill has a $125,000 (inflation-adjusted) Section 179 deduction for otherwise-depreciable assets returns in 2012. Current law would reduce Section 179 to $25,000 in 2012; the limit is $500,000 for 2010 and 2011. Unlike bonus depreciation, the Sec. 179 deduction is also available for used assets.
The bill has some surprising estate tax provisions:
– The estate tax proposal allows estates of 2010 decedents to choose whether to use the rules that were in place for 2010 — no estate tax, but only a limited step-up in asset basis — or the 35% tax with the $5 million exemption that applies in 2011 and 2012, with full fair market value basis for inherited assets.
The $5 million lifetime exemption for the bill will apply not only to estates but also for gift tax purposes. The $5 million exemption becomes available for gifts starting next year. Pre-2010 law allowed a $3.5 million lifetime exemption for estates, but only $1 million for gifts.
– The estate tax exemption will be portable; if one spouse dies with less than $5 million in assets, the unused exemption will be available to the estate of the surviving spouse.
– Estate tax returns for which taxpayers elect to be subject to the estate tax in 2010 will be due 9 months after the bill is enacted.
The 2-percentage point reduction in the employee FICA tax for 2011 will also apply to self-employment tax.
An “AMT Patch” in the bill increases the AMT exemption amount through 2011. The 2010 exemption will e $47,450 for individuals and $72,450 for joint filers.
The bill solves the “expiring provisions” problem by extending them mostly through the end of 2011. Provisions extended include the ethanol subsidy (and the protective 54-cent tariff) and the biodiesel subsidies. A few of the other extended items:
– R&D Credit
– 15 year depreciation for qualified leasehold improvements, restaurant improvements and retail improvements.
– Increased deduction limits for conservation easements.
– Work opportunity tax credits
– The economically-indispensable seven-year depreciation period for motorsports entertainment complexes.
The full list of extenders is here.
This is a surprisingly sweeping bill. It’s not a done deal, as House Democrats are unhappy with it — especially the estate tax provisions. Given the choice of humiliating a president of their own party and swallowing the bill, though, they are likely to swallow.
The TaxProf has more.
Related: The tax compromise: what do we know?
UPDATE, 3/31/2011: IRS release solves ‘second year zero’ problem for auto depreciation


Sale on gift taxes through December 31!

Thursday, December 2nd, 2010 by Joe Kristan

From my new post at

It’s looking more and more possible that the federal estate tax, which went away for 2010, will return with a vengeance in 2011. If Congress fails to act — and they have failed to solve this problem since 2001 — the estate tax will return for deaths after Dec. 31 with a 55 percent top rate and a $1 million per decedent lifetime exclusion. That makes December a crucial month for estate planning for entrepreneurs who might otherwise face this tax.
And no, not by dying this month.

There’s good stuff daily at, the Des Moines Business Record blog for entrepreneurs.


A peek at the post-estate tax estate tax form

Thursday, October 28th, 2010 by Joe Kristan

Roger McEowen discusses – and links – a draft of Form 8939, the “large transfers” form to allocate the limited basis step-up allowed to estates of taxpayers dying in 2010.
First page of draft form. Click to enlarge.

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Family LLCs as estate beneficiaries: an Iowa inheritance tax trap

Friday, October 8th, 2010 by Joe Kristan

The Iowa inheritance tax lives on even after the (temporary) death of the federal estate tax. It has many exemptions and rarely applies. A recent case before the Iowa Department of Revenue kangaroo court Administrative Hearings Division shows an instance where the tax still has teeth: when property passes to an “entity,” rather than to heirs. Roger McEowen reports:

…the decedent died on June 15, 2008, with a will provision that left the decedent