Estate Planning

WILLIAM P. STRENG is a professor at the University of Houston Law Center, where he teaches federal income taxation, corporate tax, international tax, and estate planning. During his career, he was deputy general counsel for the Export-Import Bank of the United States, an attorney with the U.S. Treasury Department, and taught at universities all over the world. He is the author of numerous books, portfolios, and articles dealing with a variety of tax subjects.

About the Author ix

Introduction 1

Chapter 1 Estate Planning Objectives 3

Notes 5

Chapter 2 Inventory of the Client’s Assets and Objectives 9

A. Scope of Factual Analysis 9

B. Family 9

C. Assets and Liabilities 10

D. Cash Flow Analysis 11

E. Present Objectives for Estate Disposition 11

Notes 12

Chapter 3 Preliminary Estate Planning Considerations 15

A. Expanded Responsibilities of the Professional Tax Advisor 15

B. Facilitating Lifetime Capital Formation 16

C. Fundamental Federal Income Tax Planning 17

D. Managing and Structuring the Closely Held Business Ownership: Family Business Succession Planning 18

E. Additional Important Preliminary Planning Inquiries 19

F. Financial Adequacy of the Estate 22

G. Hypothetical Probate Administration 23

H. Lifetime Asset Management 23

Notes 24

Chapter 4 The Basic Federal Transfer Tax and Income Tax Structure 29

A. Estate, Gift, and Generation‐Skipping Transfer Taxes 29

B. Related Federal Income Tax Considerations 45

Notes 52

Chapter 5 Fundamental Testamentary Planning 81

A. Basic Mechanisms for Transferring Property 82

B. Trusts 94

C. Credit Shelter Trust 112

D. Estate Tax Marital Deduction Transfers 114

E. Powers of Appointment 158

Notes 167

Chapter 6 Lifetime Asset Transfers 223

A. Lifetime Gifts—Arguments for and Against 223

B. Basic Federal Tax Considerations 225

C. Methods of Completing Gifts 232

D. Specific Types of Gifts 234

Notes 255

Chapter 7 Intrafamily Transfer Alternatives to Gifts 285

A. Intrafamily Sale/Leaseback or Gift/Leaseback 286

B. Intrafamily Installment Sales 287

C. Interest-Free Loans of Money 293

D. Loans of Property or Credit 297

E. Tax-Free Property Exchanges with Family Members 298

F. Private Annuities 300

G. Joint or Split Purchases 310

H. Sale of Remainder Interest in Property 317

I. Grantor Retained Annuity Trust and Unitrust 321

J. Personal Residence Trusts 327

K. Transfers of Family Properties Summarized 337

Notes 337

Chapter 8 Generation-Skipping Transfers 361

A. Purpose of the Generation-Skipping Transfer Tax 361

B. Definitional Provisions 362

C. Tax Computation 365

D. Exemptions 369

E. GST Tax Planning Considerations 370

Notes 371

Chapter 9 Special Nonprobate Planning Situations 377

A. Joint Property 377

B. Community Property 383

C. Life Insurance 394

D. Commercial Annuities 408

E. Charitable Transfers 411

F. Foreign Trusts 426

Notes 431

Chapter 10 Special Business Planning Situations 475

A. Family Business Planning Options 475

B. Closely Held Family Corporations 476

C. Closely Held Partnerships and Limited Liability Companies 492

D. Special Valuation for Family Farms and Real Property 502

E. Qualified Family‐Owned Business Interests 511

Notes 514

Chapter 11 Special Executive Compensation/Deferred Benefits Estate Planning 543

A. Executive Compensation Planning 543

B. Qualified Pension and Profit‐Sharing Plans 552

C. Self‐Employed Individual 558

D. Individual Retirement Account 559

E. Business‐Originated Life Insurance 561

Notes 569

Chapter 12 Post‐Mortem Estate Planning 591

A. Planning Options 591

B. Income Tax Planning Opportunities 592

C. Renunciations and Disclaimers 597

D. Waiver of Fee by Fiduciary 600

E. Solving Estate Liquidity Problems 601

F. Alternate Valuation 609

Notes 610

Chapter 13 Estate Planner–Client Relationship 627

A. Professional’s Responsibility 627

B. Determining the Amount of the Estate Planner’s Fee 632

C. Income Tax Deduction of Estate Planning Fees 633

Notes 636

Appendix: Worksheets 647

Bibliography 721