String of Decisions Provide Improved Definition of Defined Value Clauses

Scott A. Bowman (attorney, Boca Raton, Florida) has published his article entitled Defined Value Clauses–Better Defined, Trusts & Estates, February 2010, at 14.  

The introduction from the article is below:

After a 2006 opinion from the U.S. Court of Appeals for the Fifth Circuit in McCord v. Commissioner, many practitioners expanded their use of defined value clauses for certain transfer tax planning strategies.  But many lawyers remained reluctant to implement the technique without further assurance.  Although McCord offered positive precedent, particularly in the Fifth Circuit’s jurisdiction, the cautious noted that the decision did not address head-on the Internal Revenue Service’s public policy arguments lurking in the Fourth Circuit’s 1944 opinion in Comm’r v. Procter.  Fears persisted that, outside the Fifth Circuit, adverse precedent from Proctor and its progeny regarding transfer tax savings clauses might be applied to hold defined value clauses void against public policy.

When the Tax Court decided Estate of Christiansen in 2008 and rejected these public policy arguments, many practitioners found an additional level of comfort.  And recently, the Eight Circuit affirmed the Tax Court’s decision, denying the IRS commissioner’s appeal against defined value clauses.  Better yet, the Tax Court has reinforced the same in Estate of Petter v. Comm’r with respect to a gift-sale transaction with an intentionally defective grantor trust

So, now, it seems that permissible planning techniques using defined value clauses are finally becoming better defined.