Steve Akers, Associate Fiduciary Counsel, Bessemer Trust, provides the following summary of Estate of Shurtz v. Commissioner, T.C. Memo 2010-21 (February 3, 2010):
"In
a case involving the creation of a family limited partnership to hold
undivided interests in timberland and to hold a limited partnership
interest in another timberland partnership (with the decedent's
siblings), the court held that the bona fide sale for full and adequate
consideration exception to §2036 applied. Some of the highlights of the
case include:
- Two non-tax reasons supported the bona fide sale exception: (1) Limiting exposure from the threat of litigation; and (2) Facilitating the management of timberland.
- The facilitating management reason actually was to facilitate transfers, a reason that has been rejected by some other courts. (The decedent wanted to make gifts of interests in her farmland, and there would have been significant management concerns if she had given undivided interests in the farmland.)
- The court addressed whether the non-tax reasons must be the predominant motive (as opposed to just being a "legitimate and significant non-tax reason" as stated in numerous other cases) for forming the partnership in order to meet the bona fide sale exception to §2036. The IRS has argued in other cases that tax savings cannot be the predominant motive, but this is the first case that has explicitly agreed that having a tax savings motive does not preclude a finding of a bona fide sale "so long as saving estate taxes is not the predominant motive."
- The court avoided the "marital deduction mismatch issue" because of its finding the §2036 did not apply. The IRS argued that if §2036 applied to include the value of the assets of the partnership in the gross estate, the marital deduction would still be limited to the fair market value of the limited partnership interests (i.e., the discounted value) that passed to the surviving spouse.
- Though not addressed specifically in the reported case, the court appeared to allow tiered discounts for the decedent's limited partnership interest in the sibling partnership that was owned by the decedent's partnership.
Posted by Neil I. Rumbak, Associate Editor, Wealth Strategies Journal.
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