New Congress May Revise or Eliminate Estate Tax Reduction Techniques

150 150 Karr Tuttle Campbell

From the Tax, Trusts, and Estates Department of Karr Tuttle Campbell

Kirsten L. Ambach
Sarah B. Bowman
Johanna M. Coolbaugh
William J. Cruzen
Alan D. Judy
Douglas A. Luetjen
John E. Poffenbarger
Kathryn M. Porter
Kenneth E. Rekow
Charles A. Robinson
James K. Treadwell
George S. Treperinas

Since the early 1990s, the Internal Revenue Code has sanctioned  various advanced estate planning techniques that have had the dual  effect of protecting family assets from outside claims and  significantly reducing estate taxes for high-net-worth families. These have included the operation of family holding companies and the periodic transfer of interests in such companies directly to junior generation members or in  trust for their benefit.

Knowledgeable sources have for some time  speculated that in the  new Congress attempts would be made to limit,  if not eliminate, the tax reduction benefits of some or all of these techniques, mindful that plans in place prior to the effective date of any such legislation  would be  protected under the law as it now stands. It has been anticipated that  such attempts could find their way into the  legislation that will almost  surely be enacted this year, undoing the one-year suspension of the federal estate tax that, under current law, would take place in 2010.

As if on cue, House Resolution (H.R.) 436 was introduced in the House of Representatives on January 9, 2009. Aside from doing away with the 2010 one-year suspension of the federal estate tax and extending  the current $3,500,000 federal estate tax exemption to future years, this bill would, indeed, eliminate many of the tax benefits otherwise resulting from the implementation of family  holding company  arrangements, including valuation discounts for entities holding investment assets such as publicly traded securities and passively managed rental real estate. Only transfers having been completed before the enactment of this bill would be grandfathered under the  existing law.

As of this writing, there is little to indicate how much traction H.R. 436 will have. The bill currently has but one sponsor and appears not to be the product of the centers of influence in Congress. Still, whether this bill gains momentum or whether one or more similar bills are introduced, high-net-worth families concerned with estate taxes should give serious consideration to the implementation or refinement of the techniques available at this level of planning.

Though not the case with H.R. 436, changes such as those  discussed in this Alert are often made effective as of the date of a bill’s introduction, as opposed to the date of its enactment into law. Accordingly, for those who have such entities in place and who intend to make additional transfers or for those considering the initial implementation of this kind of arrangement, we recommend that action be taken immediately.

The attorneys and staff of Karr Tuttle Campbell’s Trust and Estate  Practice Group are versed in the formation and operation of family  holding companies and the structured value transfer of interests in such companies, including grantor trust sales, grantor retained annuity trust transfers, and split interest charitable trust transfers. Upon request, we will make our services available for immediate consultation with families, with their accountants, and with their financial advisors.

For more information on this topic and what effect the current law might have on your personal estate plan, please contact any of the Tax,  Trusts, and Estates attorneys or your personal Karr Tuttle Campbell attorney, all of whom can be reached at (206) 223-1313 or by visiting the firm’s Web site

IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that to the extent this  communication contains advice relating to a federal tax issue, it is not intended or written to be used, and it may not be used for (i) the purpose of avoiding any penalties that may be imposed on you or any other person or entity under the Internal Revenue Code or (ii) promoting or marketing to another party any transaction or matter addressed herein.

Copyright © 2009
Alerts are published by Karr Tuttle Campbell to present information on legal matters that may be deserving of clients’ immediate attention. The information contained in this Alert should not be regarded as legal advice or opinion.


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