Tax planning and estate planning are intertwined.
Think for a minute about your estate planning goals.
What comes to mind?
Do you imagine helping fund college for your grandchildren?
Do you think about the family business being transferred to the next generation?
Do you imagine your daughter wearing your heirloom necklace?
People have a variety of estate planning goals.
According to a recent The Legal Intelligencer article titled “A Recipe for Risk—Last-Minute Tax Planning for Estates,” tax planning should be high on the list.
The consequences of not including tax planning can be devastating.
Consider this story.
A man named Howard Moore ran a successful farm and owned a significant amount of property.
One day in 2004, he was admitted to the hospital.
The prognosis was not good.
Moore was given six months to live and was discharged to hospice.
Only then did he begin his estate planning.
This plan included six trusts.
These included a living trust, a charitable lead annuity trust, an trust for the adult children, a family limited partnership trust (FLP), a management trust, and an “Irrevocable Trust No. 1.”
The management trust was to serve as the general partner for the family limited partnership trust.
The irrevocable trust was to serve as a conduit for transferring funds from the FLP to the charitable trust.
The living trust was to own almost all of the limited partnership interested except for the one percent owned by each of the adult children.
The family limited partnership trust was to protect assets from business and familial liabilities.
Eighty percent of the farm was to be transferred to the FLP from the living trust after the farm had been transferred to the living trust initially.
Irrevocable Trust No. 1 was nominally funded when Moore died and was also funded by the FLP.
Funds were transferred to the charitable trust for tax purposes.
Before his death, Moore transferred assets from his FLP as loans to his children and made outright gifts to several family members.
After Moore passed away, his estate filed the gift tax return and the estate tax return.
Unfortunately, his tax planning did not go as planned.
The IRS noted a deficiency of $6.4 million.
The case went to court where the U.S. Tax Court ruled in favor of the IRS.
According to the ruling, the estate plan had little substance.
Errors were made in the rush to create an estate plan.
If Moore had created an estate plan five or ten years earlier when he would have been able to thoughtfully define his goals, costly mistakes could have been avoided.
If you do not have an estate plan, do not delay.
Take time for tax planning and legacy planning.
It is far simpler to review and a plan to meet your thoughtful goals than to make such decisions in the face of death.
Haste makes waste.
It is better to prepare than to repair.
Reference: The Legal Intelligencer (May 18, 2020) “A Recipe for Risk—Last-Minute Tax Planning for Estates”