[Recent Cases] [IRS Rulings] [From Holland & Knight Private Wealth Services Publications]

Welcome to the first edition of LAWGIC'S monthly Case Analysis Newsletter, a quick and convenient “head's up” report on important cases, rulings and articles relating to wealth transfer planning. This service is free of charge to existing estates and trusts subscribers who renew their subscription prior to their expiration date as well as to all new subscribers for the first year. We will also be offering it as a separate service for $295/year.

Here's how it works:

First, the information is divided into three categories, Recent Cases, Internal Revenue Rulings, etc., and Holland & Knight's Private Wealth Service's articles. You can go to each division by clicking on the links at the top of the newsletter. Over time, new categories will be added as needed.

Second, for each item within a division there will be a very brief lead-in under a headline that indicates what is being presented. Reading this should only take a moment, but should allow you to decide whether to read further or not.

Third, if you want to read further, you click on a “Keep Reading” link underneath the lead-in text that will take you to a new window containing the rest of the text. You can return to the main newsletter page by clicking on the back button of your browser or by clicking on “Return to Newsletter” link that is located below the end of each discussion. Where appropriate, the question references for the questions within LAWGIC that deal with the topic discussed will be included. California Wills & Trusts clients should ignore these references until the “Holland & Knight” version of California is published later this year.

Fourth, citations to cases and the law are “hot-linked” in the text body wherever possible, taking you to the actual case, law, ruling, etc. These “hot links” within the body will open new windows to present the information directly from the source (such as the CFR, etc.). Closing these windows will take you back to the newsletter. The underlying concept is to provide a series of steps that will provide information in depth depending on how much you want to read.

We thank Holland & Knight for providing the content. We also invite you to submit articles or case analysis for us to consider for inclusion. This tool is a “work in progress” so please feel free to give us your feedback.

Bruce W. Grewell
CEO
Lawgic, LLC

Recent Cases

Internal Revenue Service acquiesces in Walton decision.

In Walton v. Commissioner, 115 T.C. 589 (1993), the Tax Court determined that a taxpayer could structure a Grantor Retained Annuity Trust so that there was no gift tax. It invalidated the infamous Example 5 under §25.2702-3(e) of the Regulations, which the Service had interpreted to ascribe some actuarial gift interest regardless of the terms of the trust.

Keep Reading

Failure of IRS Agent to Correct Taxpayer's Misunderstanding of the Effect of a Tax Installment Agreement Does Not Stop Service from Levying on the Property.

Taxpayers had invested in tax shelters that resulted in disallowed deductions and corresponding tax deficiencies. As a result, the taxpayers filed for bankruptcy, but the Bankruptcy Court denied a discharge of the tax liabilities for two of the years but granted a discharge for the third year. The Court also ruled, however, that the government retained the right to collect the liability from any assets that were exempt from the bankruptcy estate, which were limited to a pension plan held in the husband's name.

Keep Reading
 

Internal Revenue Rulings

Division of CRUT in Conjunction with Divorce is Permitted Under Section 1041.

Husband and wife are the grantors and beneficiaries of a Charitable Remainder Unitrust that is required to pay each of them a stated percentage of the net fair market value of the trust assets. The wife later commenced an action to dissolve the marriage, which was granted and a property settlement executed, which called for the division of the trust into equal shares, each of which would be designed to qualify as a Charitable Remainder Unitrust.

Keep Reading

Transfers to Irrevocable Trust with Crummey Powers for Charities and Individuals did not Qualify for Charitable Deduction or Annual Gift Tax Deductions.

The decedent had created an Irrevocable Trust in which his children were the individual beneficiaries and four named charities were also designated as beneficiaries. The trustee had the power to pay part or all of the income or principal in equal or unequal proportions to any of the seven beneficiaries as the trustee (one of the children) decided. Each beneficiary had the right to withdraw a specified amount and the trustee was obligated to notify the beneficiaries of this right, which would lapse thirty days after receipt of the notice.

Keep Reading

Renunciation of Right to Receive Distributions from Trust More Than Nine Months After Deceased Grantor's Death is a Gift to the Remainderman.

A husband and wife established a joint trust that became irrevocable upon the death of the first to die. The husband has died and the trust divided into a Trust A that is a Power of Appointment Marital Trust and Trust B, which is essentially a Credit Shelter Trust.

Keep Reading

IRS revises regulations under Section 643.

While this particular section is usually pretty ho-hum, the new regulations put to rest a vexing issue concerning the marital deduction qualification of an income interest when that interest is converted into a unitrust. A hot topic among fiduciaries and estate planners has been total return trusts—an approach that characterizes distributions to beneficiaries as fixed percentages of the overall trust rather than breaking those down into income and principal.

Keep Reading

IRS releases sample QPRT.

The IRS recently released Rev. Proc. 2003-42 (2003-23 IRB 993), setting forth sample language that can be used in a Qualified Personal Residence Trust. A trust containing this language would be deemed to be qualified under §2702.

Keep Reading
 

From Holland & Knight Private Wealth Services Publications

Increased Estate Tax Exemption and De-Coupling of Federal and State Estate Taxes May Create Results You Did Not Intend

Effective January 1, 2004, the federal estate tax exemption will increase from $1,000,000 to $1,500,000, representing a significant step in the increased exemptions that are to be phased in through 2009 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). While these increased exemptions will provide much-needed relief by reducing or eliminating the federal estate tax payable by families of modest wealth, they also pose new challenges for estate planners and their clients.

Keep Reading

Policyholders Beware of New Tax Treatment

Split dollar life insurance refers to a tax-advantageous method for paying the premiums on life insurance policies. Historically, where an employer has paid life insurance premiums for the benefit of an employee, the employee has included in her income only the annual cost of term life insurance coverage for the amount of life insurance protection provided under the policy.

Keep Reading

Family Limited Partnerships as Estate Planning Vehicles: All Vehicles Should Be Driven Defensively

“Defensive drivers” exhibit behaviors that enhance their safety: scanning the road, gripping the steering wheel at 10 and 2 (o'clock) and anticipating the actions of other drivers. In a number of recent cases, the IRS has challenged the estate and gift tax benefits offered by family limited partnerships (FLPs).  In each of these cases, family members failed to respect the integrity of the entity and drove a perfectly good estate planning vehicle into a ditch.  A review of these cases provides a number of defensive driving techniques to increase the chances that your FLP will stay safely on the road.

Keep Reading


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