Beating the Estate Tax

Mid-millionaires or midmills, those who have between $ 4 million and $ 15 million, face several problems with the estate tax in the coming years. If these midmills do not take advantage of the favorable tax this year, they will probably face unfavorable taxes later on. Unfortunately, one of the best ways these midmills can take advantage of a favorable tax year is to die in a favorable tax year–a solution that is not quite practical. 

So, what are some practical solutions to this problem? One investment advisor from J.P.Morgan Private Bank suggests that the best idea might be to create a family limited partnership. Matt Erskine, an attorney from a Worcester, Massachusetts boutique firm, recommends that the best idea would be for a family to determine its assets and liabilities and gift those non-liquid assets that would qualify for a secular gifting program. However, this might not be feasible for some because many of these families have a large portion of their assets in property that they might not want to sell. 

Even if a family does not want to sell their legacy property, selling the property may still be the best solution. The valuation of the gifts could become a problem, especially if the family places the gifts in a family partnership that has an interest subject to valuation. A solution to the valuation problem might be to gift interests in a limited partnership like the petitioner did in Wandry v. Comm’r, which I have previously discussed.

See Peter J. Reilly, Beating The Possible Estate Tax Increase Without Switching To Cat Food – The Midmill Dilemma, Forbes, May 2, 2012.

Special thanks to Janet Novack(Executive Editor, Forbes Media LLC) for bringing this to my attention.