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Gifting Real Estate: A Comparison of QPRTs and Intentional Grantor Residential Trusts

As discussed in our prior post, “2012 Gift Tax Opportunities: Wait to Gift, but Do Not Wait to Plan“,  we discussed how the 2010 Tax Relief Act has provided a great opportunity for lifetime gifts to family members with a temporary increased estate and gift tax exemption of $5.12 million making these gifts potentially free of ever incurring gift or estate tax. The exemption will return to $1 million on January 1, 2013 unless Congress acts, and although most commentators think a return to $1 million is unlikely, there is a good possibility the exemption will be reduced.  However, many people are reluctant to make gifts of their liquid assets, in case they might have need of them as the get older.  Many people, therefore, are looking for ways of making a gift on a non-liquid asset, such as their home or another piece of real estate, such as

Extension of Time to File Form 8939

In PLR 201231003, the taxpayer requested an extension of time to file the Form 8939 to make a timely election to apply the provisions of § 1022 of the Code to determine the basis of property acquired from a decedent who died in 2010, pursuant to § 301.9100-3.

Notice 2011-66 stated that an extension of time to file a Form 8939 could be sought and granted under four limited circumstance, one of which was that the taxpayer met the requirements for an extension under § 301.9100-3. That Regulation requires that the taxpayer acted reasonably and in good faith, defining such to include when the taxpayer “(v) Reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.”

Trustees and Personal Representatives Left Holding the Liability Bag

When is a transferee of a decedent’s assets not a transferee subject to liability under §6324(a)(2) of the Code? The U.S. District Court of Utah’s answer to that question in United States v. Johnson, 109 AFTR 2d 2012-2253 (DC UT, 5/23/2012) was surprising when it held that the trust beneficiaries who had received the outright distribution of all of the assets of the decedent’s trust, subject to a Distribution Agreement that each beneficiary would be responsible for the payment of any unpaid estate tax, were not transferees subject to transferee liability for the estate tax under §6324(a)(2).

This case came before the Court in a motion to dismiss for failure to state a claim upon which relief can be granted. The defendants in this case consisted of the four residuary trust beneficiaries

Revenue Procedure 2012-41 Sets 2013 Annual Exclusion Gift Amounts

The IRS recently released Rev. Proc. 2012-41, which, in part, announces the inflation adjusted figures for annual exclusion gifts in 2013.

According to the Revenue Procedure, “For calendar year 2013, the first $14,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.”

In addition, for those with a non-citizen spouse, “For calendar year 2013, the first $143,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.”

New Draft Form 709 and Instructions for 2012 Gifts

In late September, the Service posted on the IRS website the new Draft Form 709 for reporting 2012 gifts and Draft Instructions for the Form 709.  This new form has also been updated to address the deceased spousal unused exclusion (“DSUE”).  A new Line 19 has been added to Part 1 – General Information, asking whether the taxpayer has applied DSUE from a deceased spouse on this or any other Form 709.  If so, the taxpayer is directed to complete a new Schedule C to determine the available DSUE, which is then included on Line 7 of Part 2 – Tax Computation as part of the maximum applicable credit amount.  The Generation-Skipping Transfer Tax computation is now on Schedule D.

It is important to note the caution at the beginning of these drafts:

“This is an early release draft of an IRS tax form, instructions, or publication, which

IRS Posts Final Form 706 and Instructions

Update: The IRS has now posted the final Instructions for the Form 706 for decedents dying in 2012, which can be found here.

The IRS has posted the final Form 706 for decedents dying in 2012, which can be found here.  However, final Instructions have not yet been posted.  Our discussion of the current Draft Instructions can be found here, but until the final Instructions have been released, they cannot be relied upon.

No Fiduciary Duty Owed To Remainder Beneficiaries Of Revocable Trust Prior To Grantor’s Death

October 12, 2012



Applying Michigan law, in Pennell v. Alverson the Arizona Court of Appeals recently came out with a well-written opinion explaining when a trustee owes fiduciary duties to the remainder beneficiaries of a revocable trust.

Cleo Hubbard executed a revocable trust that provided that Cleo was the sole income and principal beneficiary of the trust during her lifetime, and that the remainder beneficiaries were Cleo’s daughters and grandchildren.  The trust also named Cleo as trustee and Angella Alverson, one of Cleo’s grandchildren, as successor trustee in the event of Cleo’s death or resignation.  Cleo later amended the trust to appoint Angella as co-trustee.

Cleo died and the remainder beneficiaries sued Angella alleging breach of fiduciary duty and a number of other claims.  Angella sought to dismiss the claims on the grounds that

Virginia Enacts Domestic Asset Protection Trust Legislation

On July 1, 2012 Virginia became the 13th state to permit a settlor to establish an irrevocable trust where the settlor is a beneficiary and can still receive spendthrift protection against the claims of the settlor’s creditors. SB 11, which was signed by Governor Bob McDonnell on April 4, 2012, expanded the number of types of permissible trusts in Virginia and added new Virginia Code Sections 55-545.03:2 and 55-545.03:3 to permit self-settled domestic asset protection trusts. The legislation is effective for trusts created on and after July 1, 2012.

Generally, a settlor establishes an irrevocable trust to minimize the settlor’s taxable estate and/or protect the settlor’s assets from claims from the settlor’s creditors. However, only under very rare occasions can the settlor be the beneficiary of the irrevocable trust. These rare occasions and lack of control make irrevocable trusts less attractive to most potential settlors. Virginia’s new law makes it

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