Estate Planning Corner: Last Chance for Valuation Discount Planning and More

By John O’Grady, O’Grady Law Group

Valuation Discount Planning
The U.S. Treasury Department has proposed regulations that will make it more difficult for families to engage in valuation discount planning as soon as January 1, 2017. This could potentially make this the last opportunity to benefit from longstanding exemptions that can literally save some families millions of dollars.

Valuation discount planning only applies to individual estates worth more than $5.45 million (or double that for married couples), which accounts for about 0.2 percent of those who die each year. Yet many people with large estates are able to avoid using valuation discount planning to avoid paying the 40 percent estate tax. An example would be if you owned a business or a building that was valued at $10 million. Transferring 10 percent of that to your daughter would reduce the valuation not just to $9 million, but potentially much more because you would no longer be able to sell your share because no one wants to purchase a fractional interest. High net worth individuals use such strategies to decrease the value of their taxable estate. The government is proposing to eliminate the availability of this kind of planning.

The proposed regulations would bring about a sea change in available estate tax strategies because the new rules would severely restrict taxpayers’ ability to engage in valuation discount planning. If you plan on dying with an estate that is worth more than $5.45 million (or $10.9 million as a married couple), now is the time to make transfers that could save your loved ones from having to pay the enormous estate tax. An estate planning attorney with expertise in valuation discount planning can ensure that you make these transfers to save your loved ones big dollars when you are gone.

Lessons from Marie Callender: Make Trust Crystal Clear

pie During the Great Depression, Marie Callender baked pies to supplement her family’s income that her young son Don delivered to customers by bicycle. Inspired by his mom’s home cooking and entrepreneurial spirit, Don opened the first Marie Callender’s restaurant in the 1950s, which soon grew into one of the world’s first successful restaurant franchises. When Don died in 2009, he left a trust that split his $143 million fortune equally between his widow and two children. But the trust was vague about how the estate (especially the right to royalty payments) was to be distributed. That is, Callender’s daughter and son had to pay estate taxes, which basically shrank their share of the bequest down to about 27 percent each while raising the widow’s portion to almost half the total. Don’s daughter Cathe (from his first marriage) therefore filed a lawsuit arguing that estate taxes should not come out of her inheritance.

A trial court initially rejected Cathe’s claim, but the ruling was reversed by an appellate court, which found no clear indication in Don Callender’s trust that he intended his widow to have a larger share of the estate than his offspring. Like many other cases involving estate matters, the Callender family wouldn’t have had to go to court if the trust contained language clearly defining the settlor’s intent. Many people make the mistake of drafting a trust using a low-cost, online template that leaves their intent open to interpretation. This often leads to unnecessary courtroom battles between heirs that cost money, time and sometimes family relationships. Don Callender did not make that particular mistake, as his trust was drafted by an estate planning specialist. In fairness to Callender’s lawyer, managing a multi-million estate is much more complicated than administering the typical trust, but no matter what the financial stakes, it’s crucial that your trust is worded in a way that leaves no doubt about your wishes. Ammerman v. Callender, 245 Cal.App. 4th 1058 (2016).


John O’Grady leads a full service estate and trust law firm in San Francisco. He served as the 2012 Chair of BASF’s Estate Planning, Trust & Probate Section His practice includes Estate Planning & Administration, Probate & Trust Litigation, Collaborative Practice, Mediation, Conflict Coaching, Elder Law & Taxation.