When making estate planning transfers of business interests, one risks an IRS audit imposing gift tax consequences. Why? Because valuation involves judgment calls with which the IRS may disagree. To try to protect against adverse audit results, taxpayers may use formulas to define their transfers. Some formulas have protected taxpayers; others don't. Two 2020 tax court cases found certain formula transfers fatally flawed.

Some formula clauses involve excess values passing to charity or spouses. Other formula clauses define the purchase price so that the taxpayer is assured of transferring the entire business interest. Disclaimers may also work.

The first 30 minutes of this webinar will explain what an irrevocable grantor trust is and why a sale to such a trust is an effective tool.

Learning Objectives:

• Determine why sales to irrevocable grantor trusts work well for pass-through entities and how their risks compare to transfers to grantor retained annuity trusts (GRATs)


• Determine when taxpayers have succeeded when an excess gift goes to charity (whether by formula gift or disclaimer) and when the formula limits the transfer


• Recall a 2020 tax court case disallowing a deduction for a formula gift to charity


• Recall a 2020 tax court case disapproving of using dollar amounts for transfers


• Determine how to design a formula purchase price intended to run the gift tax statute of limitations


• Determine how to design the recipient trust to use a disclaimer


• Determine how to design the recipient trust to run the gift tax statute of limitations