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ESTATE PLANNING FOR THE TERMINALLY ILL By Thomas J. Murphy
REVIEWING AND DRAFTING DOCUMENTS
Wills and trusts Original copies. If the client has an existing will or trust, does he have the complete and original copy and all duplicate originals? Have execution requirements been met – witnesses, notary, etc? Keep all prior wills and trusts as a historical record of testamentary intentions. Gifts and loans. Establish which is which. If a gift, is it an advance of an inheritance? If a loan, is it to be forgiven? If so, is the forgiven amount to be included in the beneficiary’s share of the estate? Obtain whatever documentation exists verifying the gift or loan since these may disappear post-mortem. Has a large expense been undertaken for one child but not another, such as paying for a college education? Suggested clause for simple estate: The shares shall be adjusted to take into consideration the fact that I currently share a residence with my daughter, XXX, that is jointly titled in our names. My estate shall be augmented to include my one-half interest in my home. In other words, the value of my one-half interest in my home that passes to XXX by operation of law shall be considered as part of the fifty percent share of my estate that passes to XXX.
Suggested clauses for more involved estates: Equalization of Inheritance — Gifts. During the lifetime of Grantors, Grantors may make gifts to children, a child’s spouse, descendants and descendant’s spouse, in trust or otherwise. Grantors direct that all children and their spouses as a class and all descendants and their spouses as a class respectively receive, in gifts, special distributions, or otherwise, as nearly as possible, equal amounts from Grantors as each other Beneficiary of the same class. If Grantors have made unequal gifts among the child or among the descendant respectively, as evidenced by gift information in Grantors’ attorney’s office, accountant’s office or with the records of the Internal Revenue Service, then Trustee shall allocate an additional amount of either principal or income to the Trust share of respective child or descendant which received lesser amounts in gifts from the Grantor. In calculating equality, Trustee shall use present value tables using the bank prime rate for that period. 5. Special Adjustment of Inheritance. Trustee shall make certain special adjustments to the distributions as follows:
a. Education of All Children. Before making the allocation of Trust funds as provided in Paragraphs C.1 (Separation into Shares and Disposition) and C.2 (Share for After Born Child) of this Article if there are any children of Grantors who have not completed a college education, then Trustee shall set aside an amount to be determined by Trustee for the education of each child who qualifies for this benefit. This additional amount shall augment the Trust share of the qualifying child and be administered as other property in that child’s respective Trust share until the property is distributed or reallocated in accordance with the terms of this Paragraph. The purpose of this provision is to achieve fairness among the children by providing each child with as much education as possible and reasonably necessary to achieve their career related goals, plus an equal division of the remaining Trust property. If a child for whom an education fund was set aside elects to attend an alternative educational training program other than college, this shall be treated as equivalent to a college education for purposes of funding hereunder. The Grantors will consider that an apprenticeship program for a non-white-collar trade to be the equivalent of college within the meaning of this provision, it being the Grantors’ intention not to discriminate against children who would prefer and be better qualified for a “blue-collar” profession. In order to have adequate funds, if principal is inadequate to educate all Grantors’ children through the youngest, Trustee is authorized to withhold income payments to the children who have completed college educations and accumulate income to be used to educate the younger children through four years of college. The remaining income and principal shall be divided equally among all Grantors’children. To determine the educational fund for each child, Trustee shall meet with each child and an educational consultant selected by mutual agreement between the Trustee and child to set forth the child’s individual educational objectives. Should the child be under the age of 16 years, the educational consultant shall be selected by Trustee alone. Trustee, the child and the educational consultant selected shall set up a budget which will allow the child to reach his educational objectives. The educational budget and annual allowance shall be reviewed annually by the Trustee, the educational consultant and the child. This special fund shall be reallocated and distributed as otherwise provided under the Children’s and Descendants’ Trusts in accordance with Paragraphs C.1 (Separation into Shares and Disposition) and C.2 (Share for After Born Child) of this Article when one of the following occurs: (1) the child notifies Trustee in writing that benefits under this special fund shall not be requested; (2) the child dies or becomes disabled before completing his education under this special fund; or (3) the child has reasonably achieved the child’s educational or carrier goal in the absolute discretion of Trustee.
b. Wedding Expenses. Before making the allocation of Trust funds as provided in Paragraphs C.1 (Separation into Shares and Disposition) and C.2 (Share for After Born Child) of this Article if there are children of Grantor who have not yet married, then Trustee shall set aside sufficient funds to pay for a wedding and reception in an amount to be determined by Trustee for the first wedding only of each unmarried child so that it is comparable to the weddings of the married children. Such amount may not only be used for the wedding ceremony, reception, and other wedding festivities, but may also be used for a honeymoon, wedding presents and all other costs of a lawful first marriage. It is the intent of this provision to encourage the children of Grantor to marry and have families comparable to or better than Grantor’s family. This additional amount shall augment the Trust share of such qualifying child and be administered the same as other assets in that child’s Trust share until the assets are distributed or reallocated in accordance with the terms of this Paragraph. This special fund shall be reallocated and distributed as otherwise provided under the Children’s and Descendants’ Trusts in accordance with Paragraphs C.1 (Separation into Shares and Disposition) and C.2 (Share for After Born Child) of this Article when one of the following occurs: (1) the child notifies Trustee in writing that benefits under this special fund shall not be requested; or (2) the child dies or becomes disabled to the extent that marriage is impossible
Unequal or unusual bequests. Be prepared to justify it. Consider multiple wills or reaffirmation of trusts, done several months apart, to discourage probate litigation. These issues often occur with a terminally ill person who has had one particular child provide most of the caregiver services and who now wants to show appreciation for those efforts. It is crucial that the ill person, and especially the caregiver child, be warned by counsel that they should not expect the other children to be as appreciative of the child’s efforts. If one child is being omitted for non-hostile reasons, give the testator an opportunity to explain or at least to indicate that this is not an adverse reflection on the beneficiary. Suggested clause: “I make no provision for my son, XXX, whom I love and admire very much. This is not meant, in any way, to reflect adversely on him.”
Testamentary capacity. If this could be an issue, address it head-on. Get opinions from treating physicians but be sure to provide physicians with proper terms (ie, avoid “incompetence”) and definitions for testamentary capacity and Title 14 capacity. Consider videotaping a conversation with testator explaining his thoughts and the will signing. Coordinate terms of will with non-probate assets. Ascertain the status of the beneficiary designations for retirement plans, life insurance, annuities, POD accounts as well as jointly titled accounts. Make sure clients understand that the distribution of these assets will occur outside of the will. Estate tax allocations. Who will pay the estate tax? Simply allocating this to the residue of the probate estate can be a disaster if title to assets are passing outside of probate. Suggested clause: I direct that all estate, inheritance, succession, transfer or other death taxes, to include penalties and interest, paid to any domestic or foreign taxing authority with respect to all property taxable by reason of my death shall be charged against my entire estate. For these purposes, my estate shall be my federal gross estate as defined by applicable federal estate and gift tax law (currently Section 2031 of the Internal Revenue Code) and shall include any and all interests in property, real or personal, tangible or intangible, wherever situated, that I have at the time of my death, to include any and all property passing outside the probate process such as proceeds from life insurance policies, retirement plans and other employee benefit plans as well as jointly titled property and property with payable-on-death designations. Payment of such taxes shall be equally allocated among all estate assets. The prorated allocation shall be made in the proportion that the fair market value of the property received by each person interested in the estate bears to the total fair market value of all property received by all persons interested in the estate. If any of my property does not come into the possession of the personal representative, the personal representative is entitled, and has the duty, to recover from any persons possessing such property the proportionate amount of tax that is attributable to the assets possessed by that person. If the personal representative cannot collect from such person the amount of tax apportioned to such assets, then the amount not recoverable shall be prorated among the remaining estate assets. Any charge for taxes against my estate shall first be made against the estate’s principal and not the estate’s income.
Income tax allocation. Remember that any IRD asset, such as retirement plans, will be subject to income taxes when received with no stepped-up basis. Point out the net amount that the beneficiary will receive – in other words, a $1M insurance policy is not the same as a $1M 401(k) plan. Protecting Beneficiaries from Themselves, Their Creditors, Ex-Spouses, Etc. This is particularly important if minor children are involved. Suggested clauses: Protection Against Dissipation of Trust. Under no circumstances shall any Beneficiary of this Trust, other than a Grantor, who is addicted to gambling, alcohol, drugs or other chemical dependencies receive any distributions of principal or income from this Trust. If Trustee suspects that any beneficiary has any addiction to alcohol, drugs or other chemical dependency, Trustee shall require periodic tests, no more frequently than monthly, of the beneficiary to insure that the beneficiary is not taking these substances. Trustee shall, upon discovering that these substances are being taken, require periodic checks of the beneficiary for a period of one year before any further distributions are made to that beneficiary. Trustee may require at the time the principal distributions are due to any beneficiary that beneficiary take a test at an accredited laboratory selected by Trustee as a prerequisite for receiving a principal distribution. 1. Direct Payment of Benefits. Upon discovery of any addiction or dependency, the Trustee may make payments to hospitals, doctors, or other persons or organizations treating or assisting the beneficiary to recover from the addiction or dependency.
2. Purpose of Restrictions. The purpose of this provision is to dissuade any Beneficiary of this Trust from gambling or using harmful substances which are addictive, to assist the beneficiary in recovery from any such addiction or dependency and to prevent the Trust estate, as much as possible, from ever being used to support an addiction or dependency that is harmful to the Beneficiary. Protection Against Creditors. If, in the opinion of the Trustee, any beneficiary is experiencing financial difficulties due to an inability or unwillingness to properly manage their financial affairs, the Trustee is authorized to withhold any distribution to said beneficiary and to hold any such proposed distribution in further trust until the beneficiary is, in the opinion of the Trustee, of sufficient maturity and ability to properly manage his or her financial affairs. This authority shall be administered in a manner consistent with paragraph B of Article VI entitled “Spendthrift Provision.” Evidence of such inability or unwillingness shall include, but is not limited to, the filing of any bankruptcy petition, the filing of a levy, lien, foreclosure, or garnishment proceeding by any creditor against any property interest or the beneficiary, or, in the opinion of the Trustee, any seriously adverse information as contained in any credit rating report issued by a nationally recognized credit rating service. Trustee is authorized to withhold any distributions if any beneficiary will not consent to the release of such credit rating information to the Trustee. If a beneficiary is also the Trustee, the Trust Protector is authorized in a manner consistent with Article X to replace a Trustee if, in the opinion of the Trust Protector, the creditor protection may be threatened or diminished due to the Trustee having a beneficial interest in the Trust Spendthrift Provision. The interest of a beneficiary in the income or principal of the Trust hereunder shall be free from the control or interference of any creditor of the beneficiary or of the spouse of the beneficiary and shall not be subject to attachment, execution or other process of law or susceptible to anticipation, alienation or assignment, whether voluntarily or involuntarily encumbered, except in those cases where Trustee, in Trustee’s sole discretion, approves the credit extended and the assignment of the beneficiary’s interest as collateral. In exercising such discretion, Trustee shall ascertain whether or not it would be in the best interest of the beneficiary that credit be accepted and collateral given. This provision includes obligations to pay alimony or support by any beneficiary or spouse of a married beneficiary. Nothing contained in this Paragraph shall be construed as restricting in any way the exercise of any powers or discretion granted hereunder. In addition, if the Trustee, in his sole discretion and for any reasonable cause, believes that any beneficiary, who is otherwise entitled to receive a distribution from this Trust, is unable or unwilling to manage his or her finances in what the Trustee deems to be a wise, mature, and reasonable manner, may, on that basis alone, withhold such distribution from the beneficiary and may continue to hold the amount of the proposed distribution in further trust for the beneficiary until the Trustee, in his sole discretion, believes that the beneficiary is adequately able to manage his or her finances in a wise, mature, and reasonable manner. The beneficiary’s inability or unwillingness to manage his or her property in a wise, mature, and reasonable manner does not have to constitute or equate to either that of an incapacitated person, as defined in ARS 14-5101, or to those actions authorizing protective proceedings as provided for in ARS 14-5401. In other words, the beneficiary’s conduct can be less troublesome than that requiring guardianship or conservatorship.
Provisions for pets. Ascertain what happens to any pet that the client may have.
Omnibus Assignments. Used as equivalent of pour-over will where decedent has property outside of trust. Avoids probate that may be necessitated by pour-over will.
Beneficiary deeds. Another great tool that applies to all home-owning clients seeking to avoid probate. See my article in the June 2002 edition of Arizona Attorney that provides some drafting tips.
Pre-paid burial plans and after-death instructions. Does the client desire to be cremated or buried? Where will the burial be? Will organs be donated? Will an autopsy or other post-mortem examination be done? Who should be notified? What kind of marker and epitaph? It is often best to have these arrangements made in writing while the client is alive. ARS 36-831.01. If client does pre-pay, keep record of receipts since I have had mortuaries inexplicably lose any record of pre-payment.
Payment of travel expenses. State in the will whether the estate will pay for travel plans for family and friends to attend the funeral. Consider specifying whose expenses will be paid, whether a cap on expenses should be established and whether these costs will be netted against a beneficiary’s share.
Mini-biography for death certificate. Provide information for the following: Armed forces veteran Date and location of birth Social security number Occupation and in what type of business or industry Approximate date that residence in Arizona began Highest completed grade in school Parents' names
Shipping costs. State how shipping costs during administration are to be handled
Charitable bequests. I find that the terminally ill are much more charitably inclined than most of our clients. Be sure to discuss this. It is also a sure-fire way to diminish the size of an otherwise taxable estate
Power of appointments. Ascertain if the client has any powers of appointment that are exercisable by him.
Powers of attorney
Financial POAs. For financial POAs, make sure there are adequate provisions for gifting, self-dealing and reimbursement by the agent. Suggested clauses. Power to Make Gifts. _____________________. My Agent is authorized to make gifts, to include the forgiveness of indebtedness, to my spouse, my children and descendants and to the spouses of my children and descendants, to include my Agent, in whatever amounts and for whatever purposes as my Agent deems appropriate. My Agent may also make gifts to any tax-exempt charitable organization recognized under Internal Revenue Code (“IRC”) Sections 170(c) or 501(c)(3) and to those persons named as beneficiaries in the Principal’s most recent will or trust, life insurance policy, retirement benefits or payable on death designation. As to any donee, these amounts shall not exceed the largest amount which then qualifies for the annual exclusion allowed for federal gift tax purposes as set forth in Section 2503 of the IRC. The authority to make gifts is non-cumulative and shall lapse at the end of each calendar year. All gifts may be made outright, in trust or to any guardian, conservator or custodian of an eligible donee. Gifts are not required to be in equal amounts and are not required to be made to all eligible donees.
Benefits Received by Agent.______________________ It is my intention that my Agent be reasonably compensated for the services rendered on my behalf and be reimbursed for any expenses paid by the Agent which were incurred on my behalf. Reasonable compensation shall not exceed the hourly wage or salary equivalent which the Agent customarily receives in his or her regular employment. Reimbursement shall include, but is not limited to, monies paid for medications (whether prescribed or purchased over the counter), medical co-payments, fees for medical, nursing and caregiver services or laboratory work, household or personal incidentals, automobile maintenance and repair, lawn services or landscaping, fees for professional services (such as an attorney, CPA or financial advisor), reasonable travel or lodging costs in performance of the duties created by this power of attorney, maintenance and repair of my residence and care of my pets. Benefits authorized to be received by my Agent shall include any imputed rent deemed to exist due to any arrangement, agreement or understanding between my Agent and I which allows my Agent to live rent-free in my residence or other property owned by me.
Healthcare POAs. For health care issues, make sure POA is HIPAA-compliant. If current HCPOA was executed prior to the implementation of HIPAA on April 14, 2003, a new HCPOA should be executed since some health care providers and insurers will not honor pre-April 2003 HCPOAs. To ensure HIPAA compliancy, consider inserting the following paragraph in a HCPOA:
HIPAA Release Authority. I intend for my agent to be treated as I would be with respect to my rights regarding the use and disclosure of my individually identifiable health information or other medical records. This release authority applies to any information governed by the Health Insurance Portability and Accountability Act of 1996 (aka HIPAA), 42 USC 1320d and 45 CFR 160-164. I authorize:
The authority given my agent shall supersede any prior agreement that I may have made with my health care providers to restrict access to or disclosure of my individually identifiable health information. The authority given my agent has no expiration date and shall expire only in the event that I revoke the authority in writing and deliver it to my health care provider
“Stand-alone” medical records releases. The healthcare POA grants decision-making authority to another person. But our clients will typically want other family members and friends to have access to doctors and their staffs during a hospitalization but who are not acting in a decision-making capacity. As a result, I am seeing widespread use of “stand-alone” releases by elder law attorneys. The release is limited to visitation and to speaking with the medical staff. It does not authorize access to medical records. For ease of use, the release is only a one-page document. The release will list family members and friends. It should also include the attorney and members of the law firm and the employees of the client’s church or synagogue. The specific release provision should read as follows:
HIPAA Release Authority. I authorize my doctors and all other health care providers and their staffs who are involved in my health care treatment to release information regarding my location, my medical condition, my diagnosis and prognosis and any other information about me, to include individually identifiable health information, that is deemed important by my providers to those persons named above. This authority is intended by me to allow my health care providers and their staff to freely converse and communicate, both orally and in writing, with the persons named above. This document does not grant health care decision-making authority and does not in any way affect, inhibit or otherwise limit the authority granted in any existing healthcare power of attorney that I may have completed. This document is effective immediately and is durable so that it is not affected by any subsequent incapacity.
Successor trustees. A problem similar to the springing POAs will arise with successor trustees who can assume the duties of trustees upon the incapacity of the predecessor trustee. The successor trustee must be able to prove incapacity as provided in the trust agreement but may not be able to do so since he/she is only the designated trustee-to-be. He/she is not yet the trustee. My suggestion in drafting around this problem is to add a paragraph in the article of the trust agreement dealing with successor trustees that reads as follows:
HIPAA Release Provision. When in the process of determining a Grantor’s or Trustee’s incapacity, all individually identifiable health information and medical records may be released to the person who is nominated as Successor Trustee, to include any written opinion relating to my incapacity that the person so nominated may have requested. This release authority applies to any information governed by the Health Insurance Portability and Accountability Act of 1996 (aka HIPAA), 42 USC 1320d and 45 CFR 160-164, and applies even if that person has not yet been appointed Successor Trustee.
RELATED DOCUMENTS
Beneficiary designations. First, make sure they exist. Do not simply assume all is in order since, with the consolidation of many banks and brokerage houses, records are misplaced or lost with increasing frequency. Second, make sure they are current. Be especially vigilant if the client has been divorced since the designations often still reflect the former spouse. The provisions of ARS 14-2804 (where the divorced spouse is disinherited) does NOT apply to 401(k)'s and other ERISA plans. Egelhoff v. Egelhoff, 121 SCt 1322 (2001). Third, consider obtaining copies of the signature cards for any POD accounts since banks are often sloppy in maintaining these designations.
Jointly titled accounts. Always a mistake, but if they exist have the client establish the reason why son or daughter is on the account title – ie, for convenience and probate avoidance or for survivorship? Otherwise, in a post-mortem setting, it is a question of the decedent’s intent that will likely result in litigation. ARS 14-6211 & -6212; O’Hair v. O’Hair, 109 Ariz 236 (1973); Safley v. Bates, 26 Ariz App 318 (CA1, 1976)
Prenuptial agreement. Creating a valid and enforceable pre- or post-nuptial agreement is not an easy thing to do so closely examine these agreements, ARS 25-201 et seq., although the trend in recent case law has been to uphold such agreements. In Re Marriage of Pownall, 197 Ariz 577 (CA1, 2000); Schlaefer v. Financial Management Services, Inc., 196 Ariz 336 (CA1, 2000); Elia v. Pifer, 194 Ariz 74 (CA1, 1998); In Re Marriage of Bonds, 5 P3d 815 (Calif Sup Ct, 2000). Often an attorney has never been consulted that may likely render the agreement unenforceable. Disclosure of financial information is often less than complete.
Fee agreement. Particularly important where the fee is substantial. Do not assume the family will be thankful for the services you have rendered. Children have been known to question the size of a fee without realizing the amount of work performed, the amount of money or taxes that were saved or the administrative headaches that were avoided. Maintain an itemized invoice, even if billing on a flat-fee basis. And include a provision that, in the event that there is a will contest or other litigation, the estate will pay the attorney for services rendered in defending the will or addressing other issues, to include depositions or trial testimony and the preparation they entail.
PRACTICAL STRATEGIES
Encourage communications within family. Encourage the client to inform family members about the terminal illness. Withholding this information from estranged family members only adds fuel to a potential fire.
Keep receipts. A terminal illness can be very expensive, especially where insurance coverage or public programs are insufficient or non-existent. Other family members may not realize this. If a child has been the primary caregiver, this is a particularly fertile source of family discord. Without documentation, the caregiver child is very susceptible to post-mortem attacks by other family members.
Keep original copy of will and related documents. If the terms of the will or trust make it foreseeable that a will contest may ensue, then consider having the attorney retain the originals. I have had several cases where a will that did favor certain family members mysteriously disappeared. The presumption of revocation for a lost will set forth in ARS 14-3415 creates a real incentive for mischief.
Marriage or divorce. If the client has a significant companion of the opposite sex, the issue of marriage should be discussed. It has been my experience that senior couples often do not marry because of a perceived threat to their public benefits. With death in the foreseeable future, this perceived threat greatly diminishes and many advantages of marriage become much more apparent. For a taxable estate, the marital deduction can save huge amounts of taxes. IRC 2056. The status as surviving spouse brings with it many benefits. These include the probate statutory allowances, ARS 14-2402, -2403 & -2404; distribution rights and unsurpassed flexibility for retirement plans, IRC 401(a)(11) & 417. Marriage will also allow for gift-splitting, effectively doubling any annual exclusion gifting. IRC 2513(a). On the other hand, a divorce will eliminate many of these spousal rights.
Establish domicile. Determining domicile can have wide-ranging impact since the law in the state of domicile will govern, ARS 14-1301. This will effect rules of construction and administration (not the least of them concerning elective shares) as well as determining which state can impose taxes, such as inheritance, income or intangible personal property taxes. To establish an Arizona domicile as firmly as possible, the client should: register to vote in Arizona, file income tax returns with an Arizona address, register the car in Arizona, have bank and brokerage account statements (and corresponding form 1099’s) sent to an Arizona address join local community and religious organizations and obtain documentation reflecting this.
Safe deposit box. Have the client inventory the box. If the client wants to retain the box after the inventory, have another name added to the box for ease of entry. ARS 6-1004 & -1007
Medicare hospice. While the care and concern exhibited by hospice organizations have been the primary reason for participating in the program, remind the client of two important financial advantages of hospice. One is that Medicare hospice will for all drugs and biologicals “used primarily for the relief of pain and symptom control related to the individual’s terminal illness”. 42 CFR 418.202(f), 42 USC 1395x(dd)(1)(E). The other is that, like all Medicare services, there is no estate recovery as there is with AHCCCS/ALTCS.
TAX ISSUES AND STRATEGIES
Gifting. Easy to use $11,000 annual exclusion gifting as well as unlimited amounts for tuition and medical expenses, IRC 2503(e), with spouses joining in the gifting. IRC 2513(a)(1). Consider pre-paying tuition for those already in school or about to enter one. If there are no liquid or high-basis assets to gift, consider borrowing money to use in gifting. The borrowed cash can be gifted and the debt will reduce the size of the taxable estate. IRC 2053(a)(3) & (4).
Charitable gifting. This will not only get the asset out of client’s taxable estate, but will also allow for an income tax deduction that the estate is not entitled to. IRC 170(a) & 2055
Gift tax exemption. Note that, unlike the estate or generation-skipping taxes, the gift tax exemption is capped indefinitely at $1M so that we no longer have a truly unified credit between gift and estate taxes. IRC 2505.
Sell property with capital loss. It is usually not advisable to gift property that has a current FMV below the client’s basis since the donee’s basis will be the lower of FMV or the carryover basis. IRC 1015(a). Instead, sell the asset for a capital loss, gift the proceeds and use the capital loss to offset capital gains or up to $3,000 of ordinary income. IRC 1211(b)
Contemplation of death. The three-year contemplation of death provision will normally only crop up in two scenarios for the terminally ill client. One area is with respect to the transfer of a life insurance policy. If made within the three-year period, the face value of the policy will be included in the insured’s gross estate. IRC 2035 & 2042. This rules out the opportunity to use an irrevocable life insurance trust. The other area is that the payment of gift taxes within three years of death will be added back into the decedent’s estate. IRC 2035(b). This eliminates the opportunity to avoid paying “tax on the tax” for estate taxes.
Income in respect to a decedent. Consider withdrawing a substantial of funds from a retirement plan or zeroing out other IRD assets (eg, deferred compensation, accounts receivable, accrued interest or rent, installment notes) since the terminally ill client may be in a much lower income tax bracket than the beneficiaries. Or make a specific bequest of the IRD asset to charity. Treas. Reg, 1.691(a)-4(b)(2)
Conservation easements. Charitable deductions are authorized for the gifts of perpetual real estate easements that are made for historic or conservation purposes. IRC 170(h). The term “conservation” includes “land area for public recreation” and “open space including farmland and forest land where such preservation id for the scenic enjoyment of the general public”. The client will be further benefited by getting a valuation reduction in the property for estate tax purposes that the IRS has agreed to recognize. Treas. Reg 25.2703-1(a)(4).
Family limited partnerships. The creation of FLPs done near death or while seriously ill have undergone extreme IRS scrutiny in recent years. At this writing, the outcome is not clear but some fairly definitive answers may not be too far away. The United States Tax Court’s controversial opinion in the Strangi case, TC Memo 2003-145, has been stayed on appeal by the 5th Circuit awaiting the outcome the Kimball case that was argued before the Court in January 2004. The IRS’s main focus has been on IRC 2036, dealing with the retained interests of the persons creating the FLP. |