Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Tuesday, November 27, 2012

Article on the Expansion of the Future Interest to the Annual Gift Tax Exclusion

William C BrownWilliam C. Brown (Attorney, Iowa) recently published an article entitled, Judicial Expansion of the Future Interest Exception to the Gift Tax Annual Exclusion – Examination of the Legislative History and Policy Basis for the Future Interest Exception, Tax Lawyer, Vol. 65, No. 3 (2012). Provided below is part of the introduction to his article:

When the Tax Court issued its opinion in Hackl v. Commissioner in 2002, the estate planning community initially stood up and took notice. The case represented a dramatic new line of attack by the Service against one of the best tools in the estate planner’s arsenal—the family limited partnership (FLP). Prior to that time, the Service had principally attacked FLPs with only limited success on the grounds that they constituted transfers with retained interests includable in the donor’s estate under sections 2036(a)(1), 2036(a)(2), and 2038, or as indirect gifts of the underlying assets, without valuation discounts, under substance over form grounds. By and large, the estate planning community had adjusted to these potential attacks by (1) making sure personal assets were not placed in an FLP, (2) advising clients not to use FLP funds to pay personal expenses, (3) meticulously documenting the form of the formation transaction and subsequent transactions with the FLP, (4) retaining sufficient donor assets outside of the FLP to support the donor following the formation of the FLP, (5) not pursuing an FLP strategy for terminally ill donors, and (6) avoiding contemporaneous formation and gifting of FLP units. The Hackl case represented a new threat with which planners needed to deal effectively to assure the maximum benefits available from an FLP planning strategy.


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