Tax Court Permits the Reduction of Gift Tax

TheU.S. Tax Court in Steinberg v. Commissioner,141 T.C. No.8 (2013) ruled that the value of a taxable gift can be reduced ifthe donee pays the resulting estate tax if the donor dies in the three years ofmaking a gift. The donee will agree to pay the gift tax that is added to whatcan be taxed in the estate.

Inthe case, the individual who received the gift agreed by a signed writing topay any outstanding estate tax that stemmed from the gift if the donor diedwithin three years. The donor filed Form 709 claiming that the value of thegift subtracted by an estimated amount of estate tax would arise if the donordied within three years based on the “actuarial value of the donor’ssurvival.” The court reasoned that a willing purchaser would want theprice lowered to compensate for the risk of becoming responsible to pay theestate tax. 

See Kelly Humke, Reduce Gift Taxes With A Donee’s Written Promise, Wealth Strategies, Oct. 24, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.