Disclaimers and Family Settlement Agreements as Possible Solutions to Election Out and Document Construction Problems

S. Alan Medlin, F. Ladson Boyle, and Howard M. Zaritsky, 2010: It Was A Very Good Year . . . To Die-Or Was It?, 45 Real Prop. Tr. & Est. L.J. 589 (2011). Michael Yu In this comprehensive article, the authors address the effects of Congress' reinstatement, on December 17, 2010, of the estate tax and the generation skipping transfer tax. The authors first analyze how the reinstatement presents certain election out and document construction problems, and then they propose disclaimers and family settlement agreements as possible solutions. The authors have two election out problems: First, tax-sensitive language in documents may be difficult to interpret because estate or GST taxes may not have been applicable on the date of the decedent's death in 2010-possibly even without regard to any retroactivity. (P. 592.) Second, the personal representative of the estate of a decedent who died in 2010 must decide whether to elect out of the estate tax regime (and therefore into the carryover basis regime for income tax purposes) or to allow the default estate tax regime to apply. (P. 592.) The tax results under both scenarios must be compared, including reviewing the "calculation of the net appreciation in each asset, the character of the gain on the sale of each asset, the tax rate applicable to the gain on the sale of each asset, when each asset is likely to be sold and whether tax benefits exist that might reduce the tax on such sales, and how the modified carryover basis rules will apply to these assets" as well as related factors such as passive losses and partnership interests. (P. 595.) Continue reading "Disclaimers and Family Settlement Agreements as Possible Solutions to Election Out and Document Construction Problems"

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