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 Family Limited Partnership
Developments. Kenneth Brier was quoted in the August, 2004, issue of Fidelity+ concerning family limited
partnerships (FLPs), a longstanding tool of estate planners. "Since
FLPs can accomplish a number of different and important goals for
families, they've come to be thought of as the 'Swiss army knife' of
estate planning," Mr. Brier told Fidelity+. However, the recent
Strangi decision has caused some estate planners to call the future of
FLPs into question as a tool to minimize estate and gift taxes. The Tax
Court held that Albert Strangi had effectively retained so much control
over his FLP's assets that those assets could be counted as part of his
estate. Strangi does inject a note of caution into the mix. "This
Strangi decision may not hold up in appeals court, but for now we've got
to plan accordingly," Mr. Brier said. "That may mean passing
control of the FLP to the founder's spouse or to a trusted third party,
or maybe even setting up a different trust to be the general partner to
prove that the founder isn't the person in control. There should be
pro-rata distributions of income, if only occasionally, so that minority
partners are deemed to have a valuable current ownership interest. And
founders should be cautioned against putting all of their assets into the
FLP, the way Strangi did, so that they'll need to rely upon the FLP's assets
to cover their personal living expenses." Nevertheless, Brier said
he did see some grounds for optimism in the more recent Kimbell case,
which undermined the most controversial aspects of the Tax Court's ruling
in Strangi. "Kimbell has provided reassurance that FLPs, if
structured and operated properly, can withstand challenge from the
IRS."
Medical Privacy Law Problems. Kenneth Brier was quoted in
the May 31, 2004 issue of Business Week concerning the appointment
of health-care proxies. Since the recent issuance of medical privacy
regulations under a 1996 health insurance law, hospitals and physicians
have become justifiably reluctant to disclose basic medical information,
even the information needed to empower a proxy to make life and death
decisions for the patient. To address this issue, Mr. Brier suggested
that clients sign a separate document authorizing the release of
information covered by the Health Insurance Portability &
Accountability Act and adding a specific sentence to that effect in their
health care proxy document.
Tightening of
IRS Installment Payment Plan. Kenneth Brier was quoted in the April 18, 2003 issue of Business Week
regarding changes in the IRS's installment option for paying off the
estate tax on business interests. Until recently, the IRS made generous
"loans" to the heirs of entrepreneurs so that they could pay
their taxes without selling the small business. However, the IRS rarely
held security on these installment plans, leading to millions of dollars of
defaulted liabilities. Consequently, the IRS now is requiring a lien on
the family business (or other asset) as a condition of the installment
plan. Mr. Brier still thinks the installment plan is often the best
option: In some cases, "there's no other way to pay the taxes
without a fire sale," he told Business Week.
Split-Dollar
Insurance and Public Companies. Kenneth Brier was quoted in the November 11, 2002 issue of Fortune
Magazine regarding "split dollar deals," an
arrangement whereby a company pays a portion of an employee's insurance
premium; the employee then uses part of the money built up tax-free in
the policy to reimburse the company upon his retirement. But now many
legal analysts believe that many of these deals violate the
Sarbanes-Oxley Corporate Responsibility Act, which bans "extensions
of credit in the form of a personal loan" to employees of public
companies. Mr. Brier doubted that the split dollar plan would continue to
be written under conditions of such uncertainty. "It's a hell of a
lot simpler to just pay executives more and let them buy their own
insurance," he suggested.
Effect of
Estate Tax Phaseout on FLPs. Kenneth Brier was quoted in the July 1, 2002 issue of Financial
Planning Interactive concerning the effect of the 2001 tax
law, phasing out the federal estate tax, on the use of family limited
partnerships, a vehicle that individuals use toward a variety of ends,
including limiting their estate tax liability. "The 2001 tax law
cuts both ways," Mr. Brier commented. "Some factors have favored
the creation of FLPs while others reduce their appeal. Moreover, in some
case we're now using limited liability companies (LLCs) instead of family
limited partnerships."
Effect of
Estate Tax Phaseout on Gift Strategies. Kenneth Brier was quoted in
the June 13, 2002 Wall
Street Journal concerning the difficulty of smart estate
planning under new tax law. The Bush tax cuts of 2001 provided for the
estate tax to gradually diminish throughout the decade, culminating in
its abolition in 2010 - but only until 2011, when it will re-emerge at
the old rates. Some observers doubt that Congress will allow this to
happen, but instead re-impose the estate tax on large estates only. In
this state of uncertainty, making a taxable gift, in excess of the
lifetime gift tax exemption of $1 million, presents a substantial gamble,
when it is possible that at death there will be no estate taxes at all.
"It would be a tragic waste to pay gift tax if you could just live a
few years and avoid the whole thing," Mr. Brier said.
Section 529
Plans.
Kenneth Brier was quoted in the February 11, 2002 Wall Street Journal regarding a new type
of college savings account - the 529 plan. More and more financial
advisers have been looking to 529s as a method for decreasing estate tax
liability since 2001, when the new tax law made withdrawals from 529s
tax-free when used for college expenses. Many estate planners see many
opportunities in this provision to shield their clients from tax
liabilities. "We have only just begun to see variations on the
theme," Mr. Brier commented. He expected to see many new planning
ideas develop around 529s in the future.
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