¹⁹Part I of this article, in the January 2001 issue, discussed certain exclusions and exemptions indexed for inflation. The Service has since issued Rev. Proc. 2001-13, IRB 2001-3, which contains the indexing for 2001 and provides that the annual exclusion under Sec. 2503(b) remains at $10,000; the GST exemption under Sec. 2631 increases to $1,060,000.

²⁰Rev. Rul. 85-13, 1985-1 CB 184; but see Harold Rothstein, 735 F2d 704 (2d Cir. 1984).

²¹See Frederic W. Procter, 142 F2d 824 (4th Cir. 1944), cert. den.

²²If the Service argues a transfer with a retained interest, Sec. 2702 may apply for gift tax purposes, which could cause the entire value of the property sold to the trust to be a taxable gift.

²³See Bernard Madorin, 84 TC 667 (1985), Regs. Sec. 1.1001-2(c), Example 5 and Rev. Rul. 77-402, 1977-2 CB 222.

²⁴IRS Letter Ruling (TAM) 200011005 (11/23/99).

²⁵See Est. of Suzanne W. Cullison, TC Memo 1998-216, for a discussion of the method for valuing the gift.

²⁶To ensure this result and avoid the application of Regs. Sec. 25.7520-3(b)(2)(i), the annuity should not be made payable from a trust or other limited fund.

²⁷See, e.g., Est. of Alma W. Mitchell, TC Memo 1982-185, aff'd, 734 F2d 15 (6th Cir. 1984); Simon M. Lazarus, 58 TC 854 (1972), aff'd, 513 F2d 824 (9th Cir. 1975).

²⁸See Est. of Lloyd G. Bell, 60 TC 469 (1973).

²⁹Rev. Rul. 69-74, 1969-1 CB 43.

³⁰See Harris, "Even the Blackest Cloud Has a Silver Lining: Wealth Transfer Planning for the Terminally Ill Client," 32A U. Miami Philip E. Heckerling Inst. on Est. Plan (1998), Ch. 5.

³¹See Est. of Janet M. Frane, 998 F2d 567 (8th Cir. 1993).

³²For a broader discussion of CLTs, see Capassakis, “Estate Planning with Charitable Lead Trusts,” 22d Annual AICPA Advanced Estate Planning Conference (1999).

³³See Regs. Secs. 20.2055-2(e)(2)(vi)(a) and 25.2522(c)-3(c)(2)(vi)(a).

³⁴The Service has recently issued proposed regulations that limit the CLT term under certain circumstances, effective for trusts created on or after April 4, 2000. See Prop. Regs. Secs. 1.170A-6, 20.2055-2 and 25.2522(c)-3. Generally, under the new provisions, an individual may be used as a CLT measuring life only if that individual is the donor, the donor’s spouse or a lineal ancestor of all the remainder beneficiaries.

³⁵See Regs. Sec. 1.508-2(b)(1)(i)(a).

³⁶Sec. 4947(a)(2); see also Regs. Sec. 1.508-2(b)(1)(vi)(a).

³⁷See Regs. Secs. 25.2512-5(a), (d) and 25.7520-3(b)(3).

³⁸See Regs. Sec. 25.2522(c)-3(c)(2)(vi).

³⁹See IRS Letter Ruling 9908002 (11/5/98).

⁴⁰John R. Moore, TC Memo 1991-546.

⁴¹Virginia Z. Harwood, 82 TC 239 (1984); see also Est. of Etta H. Weinberg, TC Memo 2000-51 (court applied combined discounts under different valuation approaches, resulting in overall discount of 49.77%); Est. of Richard R. Simplot, 112 TC 130 (1999) (court allowed 35%–40% lack of marketability discount for interests in a closely held corporation, applying a 3% control premium for voting privileges).

⁴²See, e.g., IRS Letter Rulings (TAMs) 9719006 (1/14/97), 9723009 (2/24/97), 9725002 (3/3/97), 9730004 (4/3/97), 9735003 (5/8/97) and 9842003 (7/2/98).

⁴³Est. of Albert Strangi, 115 TC No. 35 (2000) and Est. of Ina F. Knight, 115 TC No. 36 (2000).

⁴⁴For a comprehensive discussion of the possible pitfalls and areas of IRS attack involving FLPs, see Eastland, "The Art of Making Uncle Sam Your Assignee Instead of Your Senior Partner: The Use of Partnerships in Estate Planning," 22d Annual AICPA Advanced Estate Planning Conference (1999).

⁴⁵But see Est. of Daniel J. Harrison, TC Memo 1987-8, in which the Service lost a similar argument.

⁴⁶Est. of Strangi, note 43 supra.

⁴⁷Est. of Charles E. Reichardt, 114 TC 144 (2000); Est. of Dorothy Morganson Schauerhamer, TC Memo 1997-242.

⁴⁸Est. of Knight, note 43 supra.

⁴⁹Est. of Elizabeth B. Murphy, TC Memo 1990-472.

⁵⁰See IRS Letter Ruling (TAM) 9842003, note 42 supra.

⁵¹See Sec. 2704(b)(3)(B); Regs. Sec. 25.2704-2(b).

⁵²Blaine P. Kerr, 113 TC 449 (1999).

⁵³IRS Letter Ruling (TAM) 9804001 (9/30/97).

⁵⁴IRS Letter Ruling (TAM) 9751003 (8/28/97).