Article Summaries: Week Ending February 16, 2024

Business roundup; Executive summary of this week’s articles

As a new feature, I will aim to provide a summary of each week’s articles on Friday of each week.  Occasionally these reviews will be for a 2-week period.  Summaries of free articles are available to everyone, but summaries of paid articles are only available to paid subscribers.  I will preface the summaries with a business roundup or idea as previously introduced.

Table of Contents

1. Business Roundup

2. Free Article Summary

   1. A Little-Known Gift Tax Exclusion: Transfers in the Ordinary Course of Business

3. Paid Article Summaries

   1. C and S Corporations for Estate Planners: Tax Accounting

   2. The Intersection of Charitable Remainder Trusts and Estate Tax, Part I

Business Roundup

I found this recent article by James Dougherty in Trusts & Estates to be highly instructive about the talent shortage in estate planning law. This is a subject on which I have a lot to say as the classic “Millennial” associate whose career was dictated by the scarcity of the Great Recession, but I will be brief. 

Mr. Dougherty calls out the lack of training in law school, which I largely agree with.  Personally, I was lucky enough to have the opposite experience in my estate and gift taxation course during my 3L year.  This course had practical exercises, and it gave me a good leg up to walk in on my first day of legal employment and know what my managing partner was talking about.  But, I realize that not all students are on a tax track – which I personally found to have better prepared me compared to other areas of law.  I also spent over a decade teaching tax and estate planning for the CFP prep program through the College for Financial Planning and Kaplan, which gave me a leg up in my everyday practice.

Regardless of my personal experience, better training needs to occur.  That is why I publish this newsletter and my YouTube videos – to provide the education I wish I had as an associate.  Nonetheless, until economic incentives change in law practice, estate planning will continue to get squeezed.  While often low-stress when compared to other practice areas, estate planning has its own trade-off of higher stress when it comes to meeting billables and metrics in a full-service law firm - often coupled with the aforementioned lack of training (perhaps because the billable system allows on-the-job training on client matters to be billed). 

And, as long as document drafting and the administration of trusts and estates are the sole revenue-generating activities, not much will change in terms of developing and retaining new talent. This is especially true where estate planning associates have to cross over to other areas of law to meet billables, which throws a wrench in succession and depth of expertise.  I will have more to come on that. 

For now, let’s take a look back at some of this week’s articles.

Free Article Summary

A Little-Known Gift Tax Exclusion: Transfers in the Ordinary Course of Business

In this article, I analyzed PLR 202406012.  This written determination found that a stock surrender by an executive and related trusts created by the executive would not result in a taxable gift to non-participating, unrelated shareholders. 

The IRS based its determination on Treas. Reg. 25.2512-8, which creates an exception to gift tax for transfers in the ordinary course of business.  Since the executive established a corporate business purpose to the satisfaction of the IRS, this exception was met.  Thus, the proportionate increase in outstanding stock for non-participating shareholders as a result of the share surrender was not an indirect taxable gift from the participating shareholders. 

Further, from an income tax perspective, the share surrender was a capital contribution under IRC 118 that did not generate a taxable loss to the participating shareholders.  Instead, the basis in the surrendered shares was proportionately added to the basis of their retained shares.  No stock dividend occurred for the indirect transfer by attrition to non-participating shareholders mentioned above under IRC Section 305. 

Finally, since the participating shareholders (a few of which were GRATs) surrendered shares proportionately to each other, no additional indirect distributions occurred from the GRATs to executive.  Thus, the GRATs did not fail to satisfy IRC Section 2702.

Paid Article Summaries