Article On Formula Clauses

Paige K. Ben-Yaacov (partner in the Private Clients Group of the Houston, Texas, office of Baker Botts L.L.P.) recently published an article entitled, Formula Clauses: Are Two Donees Better Than One?, Probate & Property Magazine: Volume 29 No. 06 (2015). Provided below is an abstract of the article:

Formula clauses can be particularly helpful for clients who wish to make gifts or bequests of hard-to-value assets.  Because of the nature of the asset, the client and the IRS may disagree on the value of the asset.  Sometimes a difference of opinion over value is understandable; sometimes not.  Clients, however, may have little understanding or tolerance for valuation differences that lead to uncertainty in the amount of their gift or estate tax liability.  To alleviate this tension, clients can use a formula to structure their gifts or bequests in a manner designed to fix the amount of their taxable gift.  Although formula clauses are not an absolute shield against attack by the IRS, they do provide another arrow in the quiver of arguments used to help settle valuation disputes in the context of gift or estate tax audits.