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This page contains a single entry by Associate Editor - 2 published on September 12, 2012 4:49 PM.

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A Potpourri of Developments: Wandry on Appeal & State Estate Tax & Income Reimbursement Updates

A Potpourri of Developments: Wandry on Appeal & State Estate Tax & Income Reimbursement Updates

Managing Director & Head of Wealth Advisory 
Lazard Wealth Management LLC

Here are some of the latest federal and state estate planning developments.


Wandry Appealed to 10th Circuit

On March 26, 2012, the Tax Court issued what has been heralded as a ground breaking decision in Wandry v. Commissioner, T.C. Memo 2012-88. The Court upheld a stated dollar value defined value clause of gifts of LLC interests, in which no charity was involved in the formula allocation.

A Notice of Appeal to the 10th Circuit was filed on August 28.


Estate Taxes:


Illinois Attorney General Adopts New Rule Regarding Estate Tax Treatment of Civil Unions

Pursuant to the Illinois Religious Freedom Protection and Civil Union Act, effective June 1, 2011, parties to a civil union are subject to the same obligations and afforded the same benefits that apply to spouses.  Accordingly, the recently adopted rule provides that an Illinois marital deduction, including a qualified terminal interest property (Q-TIP) election, is allowable between civil union partners.  Because civil unions are not recognized for federal estate tax purposes, the following returns must be filed with the Illinois Attorney General:


1)        A Form 700 Illinois Estate and Generation-Skipping Transfer Tax Return;

2)        A pro forma Form 706 completed as if the marital deduction was allowed for federal purposes; and

3)        If there is a federal filing requirement, a copy of the Form 706 actually filed.


The new rule is effective August 9, 2012.


Oregon Proposal to Phase Out Death Taxes

Pursuant to legislation signed in June last year, Oregon replaced its pick-up tax with a stand-alone estate tax that has a $1 million dollar exemption amount and separate rate schedule for individuals dying after December 31, 2011. Taxes are payable only on the amount that exceeds $1 million at graduated rates, which start at 10% and increase to 16%.

On July 27, a citizen's initiative to enact the "Death Tax Phase-Out Act" was approved as a November 6, 2012 ballot measure.  Pursuant this proposal, taxes would be reduced to a descending percentage of the tax collectible just before the passage of the Act.  The reduced percentage would apply to individuals dying in the listed years as follows:

-  2013: 75% of prior tax collectible  

        -  2014: 50% of prior tax collectible  

        -  2015: 25% of prior tax collectible  

-  2015: 0% of prior tax collectible


If approved at the November ballot, the Act would be effective January 1, 2013.



Reimbursement of Income Taxes to Grantors of Intentionally Defective Grantor Trust:


The intentionally defective grantor trust is a popular estate planning technique whereby the grantor is treated as the owner of the trust property for income tax purposes, but the trust property is typically excluded from the grantor's estate for estate tax purposes. Payment of the income taxes by the grantor is, in effect, a further gift to the trust, which can grow without depletion for the tax liability. Revenue Ruling 2004-64 provides that a trustee's discretionary authority (whether or not exercised) to reimburse the grantor for the grantor's income tax liability attributable to trust assets will not, by itself, cause the value of the trust's assets to be includible in the grantor's gross estate. The IRS cautioned, however, that estate tax inclusion may occur if applicable local law subjects the trust's assets to the claims of the grantor's creditors.


Movement in New Jersey

Identical bills introduced in the New Jersey Assembly and Senate on January 10 provide, in effect, that the trustee's discretion to reimburse the trust creator for income taxes paid is not to be considered a right that would subject the trust assets to the claims of the creator's creditors.  According to the bill summary, the amendment is in response to Revenue Ruling 2004-64, after which many states modified their laws, and is modeled after New York's Estates, Powers & Trusts Law s.7-3.1(d).


The Senate bill passed on August 20, 2012 and was sent to the Assembly.


Ohio Pending, Virginia Enacted

Ohio has recently introduced and Virginia has recently enacted legislation to provide that a trustee's discretionary authority to pay directly or reimburse the settlor amounts for income taxes payable on trust income will not subject those amounts to the claims of the settlor's creditors.  The Ohio proposal has passed the House and been sent to the Senate.  The Virginia law took effect on July 1, 2012. 


Lazard Wealth Management is part of Lazard, one of the world's preeminent financial advisory and asset management firms. With origins dating back to 1848, Lazard operates from 42 cities across 27 countries in North America, Europe, Aia, Australia, Central and South America. Lazard Wealth Management takes an innovative and preservation-based approach to wealth management in servicing wealthy individuals, families and foundations. We provide a highly tailored suite of advisory and investment services, integrated across disciplines to deliver a breadth of solutions to clients' complex financial and strategic challenges. 

For more information on Lazard Wealth Management, please visit

Copyright @ 2012.  All rights reserved.

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, please be advised that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. 

This material is written by Lazard Wealth Management LLC for general informational purposes only and does not represent our legal advice as to any particular set of facts and does not convey legal, accounting, tax or other professional advice of any kind; nor does it represent any undertaking to keep recipients advised of all relevant legal and regulatory developments.  The application and impact of relevant laws will vary from jurisdiction to jurisdiction and should be based on information from professional advisors.  Information and opinions presented have been obtained or derived from sources believed by Lazard Wealth Management LLC to be reliable.  Lazard Wealth Management LLC makes no representation as to their accuracy or completeness.  All opinions expressed herein are as of the date of this presentation and are subject to change.