As estate planners, we often focus on our role as strategists, planners that set up a workable estate plan. Examples include establishing a family limited partnership to achieve estate tax discounts, or creation of one or more trusts for estate tax reduction, or establishment of a trust for creditor or spousal protection.
In one of its most important valuation decisions since the 1981 valuation opinion in MF Bright Est., the Fifth Circuit in J.A. Elkins Est., addressed the issue of whether a partial interest in artwork is entitled to a discount, and at what level.
There are numerous elections that fiduciaries can make on estate and trust federal income tax returns to help maximize tax efficiency for the entity and its beneficiaries. One such election is the Section 643(e)(3) election, which permits a fiduciary to treat the distribution of in-kind property as having been sold by the entity to the beneficiaries at fair market value (FMV), thereby triggering potential gain, among other consequences.
For our clients' businesses in the partnership format, the interplay of income tax planning and estate planning will continue to present sophisticated challenges. This is particularly demonstrated by questions regarding the 3.8-percent tax on net investment income under Code Sec. 1411 (c), and whether material participation by the trustees avoids passive income for a trust that receives trade or business income from an operating partnership.
Donor advised funds (DAFs)1 and private foundations (PFs)2 are often compared and con- trasted. Those making the comparisons often quickly conclude that a DAF is the better choice. More and more it seems that DAFs are becoming the reflexive recommendation of many advisors. Almost before a client describes her charitable desires—or how large the —the advisor enthusiastically decrees, “The DAF is the right choice for you!”
Percolating out there in estate planning since 1984 has been the concern about retitling assets to allow the funding of the credit shelter trust at the first spouse’s passing. With the estate tax exclusion reaching $600,000 in 1984, planning often required a retitling of assets from one spouse to another to ensure that when the first spouse passed away, there would be sufficient assets to fund that spouse’s credit shelter trust.
There can be no better test of an estate planner's skill than with creative, focused drafting of estate planning documents to achieve client specific objectives. Tremendous value can be added to any estate plan by inventive, thoughtful estate plan drafting. And yet, whether the estate planner feels enriched and intellectually challenged may not be the correct focus. The question is what does the client anticipate and value.
When attorneys draft trust documents, it's important to include maximum flexibility mechanisms to better respond to future tax, societal and beneficiary changes. Despite our clients' and our belief in crystal ball prognosis, these situations really are unforeseeable.