My Mom Is Dying: What Should I Do About Estate Tax?

by Bruce Givner on January 16, 2012

We get the call all too often: “My mom (or dad) is dying: what should I do?”  Of course, if they are calling us, what they really mean is “what should I do to reduce the potential estate tax?”  The answer is that late-stage planning is inferior to planning that is done in advance.  And late-stage planning is looked upon by the IRS with suspicion.  There used to be a concept called “gifts in contemplation of death.”  It was repealed over 20 years ago.  However, the IRS still operates, on a visceral level, as if that is still the law.

Despite that, there are still steps that can be taken that may help ameliorate the ultimate estate tax liability.  For example, does mom own a home?  Then perhaps mom should make a gift of a ten percent interest in the home to her children.  Then mom should enter into a lease agreement for the use of that 10% at appraised fair rental value.  Then, upon mom’s death, there is a decent argument that she doesn’t own the home, but 90% of the home which should be discounted by a “tenancy in common” discount which might well be meaningful (20%?  30%).

Similarly, does mom own an apartment building?  Mom should make a gift of an undivided interest in the building to her children.  That may lead to the same valuation result as described above for the home.

How long does mom have to live?  If it is more than a year, then it is not too late for mom to sell assets to the children for a “private annuity,” which is a stream of payments that stops on mom’s death so that nothing is included in her estate.  Even if there is not enough time left for a private annuity, a sale for a long-term note might reduce the value of what is included in the estate.

End-stage planning is difficult and tricky.  We’re not going to give away all of the trade secrets in this blog.  But some thoughtful moves can pay large dividends. If you’re in this situation, you need to contact Givner & Kaye today. www.GivnerKaye.com (310) 207-8008

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