Formula Clauses and Adequate Disclosure for Transfers of Assets in Estate and Gift Tax Planning

This CLE/CPE course will provide estate planning counsel and advisers with a comprehensive and practical guide to structuring defined value formula clauses to avoid gift tax consequences on asset transfers. The panel will provide specific guidance on making formula allocations to withstand IRS scrutiny and identify conditions in transfer structures that trigger gift tax imposition.

The use of defined value clauses to mitigate gift tax impact on the transfer of hard to value assets has long been an item of IRS scrutiny. While the IRS lost several tax court challenges to defined value clauses, it continues to take an adverse audit position and seek suitable new cases to take to court.

Several defined value clauses have withstood IRS scrutiny, utilizing both formula allocations and price adjustment clauses. Proper implementation of the transfer is critical to structuring a defined value clause, and there must be no prearrangement between the transferor and the transferee.

In the current environment with an increased exemption amount, estate planning advisers should protect lifetime transfers from unintended gift tax with a well-designed defined value clause. Because the IRS will continue to scrutinize the construction and implementation of defined value clauses, estate planners must carefully draft and strictly implement the provisions according to their terms.

Listen as our panel provides comprehensive guidance on structuring defined value clauses that will withstand IRS scrutiny and challenges and addresses recent developments impacting the use of these formula clauses in trusts and estate planning. The panel will review specific language designed to be as robust as possible if challenged yet flexible enough to be used in multiple contexts.