Beth Kaufman Speaks to The Wall Street Journal on Mikel Estate Tax Case

May 22, 2015, The Wall Street Journal

Caplin & Drysdale's President, Beth Shapiro Kaufman, spoke with The Wall Street Journal regarding the U.S. Tax Court case Mikel v. Commissioner where the court ruled against the IRS and allowed a New York couple to use a Crummey trust to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions.  For the full article, please visit WSJ's website (subscription required).

Excerpt taken from the article.

If the couple made gifts in December 2014 and January 2015—two different tax years—they could shield nearly $900,000 from gift or estate taxes in short order.

"When both partners are alive and have a flock of grandchildren, they can move a lot of assets quickly," says Beth Kaufman, an attorney with Caplin & Drysdale in Washington.

There's an important catch with Crummey trusts. To satisfy legal technicalities, the heirs (or their guardians) must have the right to withdraw funds for a certain period each year—usually 30 or 60 days.

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There are other quirks as well. Income earned within Crummey trusts can be taxable to the beneficiaries even if the trust doesn't pay out income—a fact some tax preparers don't know, says Ms. Kaufman. She adds that people setting up Crummey trusts should consider at the outset whether it's better to have one trust to benefit all recipients or a separate trust for each one.

The Mikels' trusts were set up to benefit 60 different family members and used the annual exclusions then in effect. As a result, they were able to transfer $1.6 million tax-free without eating into the $1 million lifetime federal gift- and estate-tax exemption that each spouse had at the time. Now, the gift- and estate-tax exemptions are combined; this year, the break is $5.43 million.

The IRS challenged their maneuver, but the judge sided with the Mikels—the latest in a series of pro-taxpayer decisions that have broadened Crummey trusts over the decades.

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