Below is a brief glance at what you’ll find in the May/June 2014 issue. The Estate Planner – May/June 2014
Valuing LLC interests: How to lose in Tax Court
After the IRS determined that an estate had underreported the value of its interest in a limited liability company (LLC), it assessed an estate tax deficiency. The estate responded with a new appraisal, prepared by another professional appraiser, which valued the LLC interest at a figure that was lower than what was reported on the estate tax return. The estate sought a refund. While the Tax Court seemed sympathetic to part of the estate’s argument, it ultimately refused to admit the second appraisal into evidence at least partly because the second appraiser wasn’t available to testify in support. This article emphasizes the importance of having a valuation supported by a qualified valuation expert. A sidebar discusses how LLCs and family limited partnerships (FLPs) can save taxes.
Should you keep your trust a secret?
Worried that the prospect of a large inheritance might harm their children’s work ethic, some people establish “quiet trusts,” also known as “silent trusts.” In other words, they leave significant sums in trust for their children; they just don’t tell them about it. But this article lists several disadvantages of this approach. It argues that an “incentive trust,” which is known to the beneficiaries and which specifies conditions they must meet to be eligible for distributions, can do a better job of encouraging a sense of responsibility.
Preservation effort: A “stretch IRA” can maximize your IRA’s benefits
Structuring an IRA as a “stretch IRA” can preserve its benefits for many years — and can benefit both one’s estate and retirement plans. This article takes a closer look at the ins and outs of stretch IRAs, showing how the beneficiary can enjoy tax advantages by having distributions based on his or her own, presumably longer, life expectancy, rather than the distribution period that applied to the deceased. To avoid having the beneficiary immediately empty the account — thus defeating the purpose of a stretch IRA — a “conduit trust” can be set up.
Estate Planning Red Flag: You hold joint title to property with a relative or friend
Owning assets jointly with one or more children or other heirs is a common estate planning “shortcut.” But like many shortcuts, it can produce unintended — and costly — consequences, such as unnecessary taxes, creditor claims, and loss of control. This article notes that one or more properly drafted trusts can avoid each of these problems without the need for probate.
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