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Elderly woman beats tax court on gifting arrangement, P.2

In our previous post, we began looking at the story of an elderly woman who came up with a gift arrangement that would allow her to avoid having to pay the full tax rate. The IRS, as is understandable, objected to the arrangement, claiming that the gift did not actually reduce the value of her estate and that she consequently undervalued her gift tax by $1.8 million.

When the elderly woman challenged the IRS, the tax court agreed with her. She had argued that the increased tax burden her daughters agreed to take on did count as a reduction in the value of the net gift. That the woman beat the IRS in this case should not be taken as a matter of course. The IRS is mostly known to get its way, though it does make mistakes. With regard to estate planning and gifting, readers should be cautious about taking any practical tips from the case, other than a general piece of advice concerning gifting.

One matter that the case highlights is the importance of timely gift planning, especially of not waiting until one is on one’s death bed to give away one’s wealth. Planned giving is easier than many people think, and with the help of a financial planner can be worked seamlessly into one’s estate plan.

Gift planning can be as simple as working in yearly giving on a planned timetable, or it can involve setting up trust funds and using other gifting techniques to pass on a legacy. Whatever one does, it is important that it be set up properly and legally, and that it fit in with one’s personal and family goals.

Source: LifeHealthPRO, “How one family fought the IRS on estate taxes—and won,” Tom Nawrocki, October 17, 2013. 

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