Steve Akers, Senior Fiduciary Counsel, Southwest Region, Bessemer Trust, has made available for download his musings on the case of Estate of Holliday v. Commissioner.

The synopsis of the discussion begins as follows:

The court concluded that no legitimate and significant reasons for creating an FLP existed and that partnership assets were included in the decedent’s estate without a discount in Estate of Holliday v. Commissioner, T.C. Memo 2016-51 (Judge Gerber).

The decedent moved to a nursing home in 2003 and her financial affairs were managed by her son under a power of attorney. She created a limited partnership in which she was the 99.9% limited partner, and her wholly owned LLC was the 0.1% general partner. A week later she contributed $5.9 million of marketable securities to the partnership and on that same day sold all her membership interest in the LLC to her sons and gave a 10% limited partnership interest to an irrevocable trust. She retained significant assets outside the partnership. The partnership made one relatively small ($35,000) pro rata distribution. She died about two years later, and her estate claimed a 40% discount for her remaining 89.9% limited partnership interest.

The IRS argued that the transfer of assets to the partnership triggered Section 2036(a)(1), requiring that the partnership assets be included in her estate without a discount. Section 2036(a)(1) requires that (i) the decedent made an inter vivos transfer of property, (ii) the decedent retained (either explicitly or by implied agreement) the possession or enjoyment of, or the right the income from the property, and (iii) the transfer was not a bona fide sale for adequate and full consideration. The contribution of assets to the FLP constituted an inter vivos transfer of property, satisfying the first required element. The court focused on the last two required elements.

Find the full summary here

Posted by Pooja Shivaprasad, Associate Editor, Wealth Strategies Journal