Estate of Powell-Rosebud…

Estate of Powell,, is a recent Tax Court case that illustrates how not to do it.  It involved perhaps the most aggressive deathbed  planning I have ever read about.  The decedent’s son, acting under a power of attorney that didn’t give him full authority to do the planning he undertook, transferred marketable securities to a new family limited partnership (FLP) in exchange for a 99% limited partnership interest.  The son, then transferred the limited partnership interest to a charitable lead trust.  Two of decedent’s sons transferred cash to the FLP for the general partner interest.  The decedent died seven days later.

Given the facts is no surprise that the taxpayer lost this case, but Powell is significant because it extended Code Section 2036(a)(2) to a situation where the decedent only owned the limited partnership interests. The Court basically said the decedent’s lack of ownership in the general partner interest was illusory because the son acted for her under the power of attorney.

The majority opinion also, on its own accord, raised the possibility of double inclusion under Code Sections 2036, 2033, and Code Section 2043.  That analysis is beyond the scope of this post.

Suffice it to say that just as Citizen Kane expressed regret about the road his life had taken on his deathbed by whispering “Rosebud,” aggressive deathbed estate planning can leave surviving family whispering their own words of regret…but those words probably are best left unsaid.  And as planners we may be left whispering our own words of regret because often bad facts make for bad law, and this may be one of those times.

About Grady Dickens

I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.