|
|
 |
|
| Trusts |
Estate Tools for the Trusting
Thomas M. Kostigen
02/02/2004
|
Though few had ever heard of him, the death in 1994 of Texas entrepreneur Albert Strangi would profoundly impact us all. Last May, nearly a decade after his demise, the U.S. Tax Court ruled that the family limited partnership Strangi established shortly before his death did not qualify for advantageous tax treatment. This decision against his estate set many scrambling to find alternatives to this widely used structure—a search that gave impetus to a relatively new product known as a Restricted Management Account (RMA).
 The pall the Strangi case has cast over family limited partnerships has vastly weakened the appeal of a very common estate-planning tool, in which families give up control of the management of their assets for a number of years in exchange for the right to put a below-market value on the assets when estate taxes are calculated. The Internal Revenue Service took Strangi’s heirs to court to collect estate taxes on more than $4 million in assets his partnership had discounted. Strangi, the IRS argued, retained too much control over the $11 million in assets he placed in the partnership.
RMAs seek to resolve this issue by accomplishing much the same goal as family limited partnerships (that is, discounting assets), but with a more distinct abandonment of control that, hopefully, deflects the IRS’s ire. Trust and private banking specialists say there have been roughly 100 RMAs set up in the last three years, most of which have been established since the Strangi decision. As with
a partnership, someone opening an RMA must relinquish all control over the assets put into the account, usually for
at least five years, as a quid pro quo for receiving a large
discount on their value—up to 40 percent—in the eyes of tax authorities.
|
|
|
|
|
|
|
