FLP cases and Wandry make a top-10 list of 2012

“As long as the outcome of family limited partnership cases continues to be fact-specific, expert-specific, and sometimes even judge-specific,” says Ron Aucutt, an attorney with McGuireWoods, who just posted a “top 10” list of estate and gift planning developments of 2012, “an FLP case is likely to be one of the ten most watched or most discussed developments of the year.”

From the past year’s cases, it appears that one of the more “crucial bad facts” for an estate is when the FLP’s founder retains sole control as general partner and also retains partnership funds for support, in effect treating the FLP like a trust instead of an “arm’s length” investment. (But aren’t most “arm’s length” transactions “made with the expectation that the investment will produce a return and that the investor might live off that return?” Aucutt asks.) On the other hand, “good” facts for FLP cases arise when asset protection and risk management are “astonishingly self-evident,” Aucutt says.

Number four on his list is Wandry v. Commissioner, the Tax Court’s decision in favor of defined-value clauses in the context of charitable gifts, which the IRS subsequently appealed to the 10th Circuit and then withdrew, substituting instead its notice of its “non-acquiescence.” “The fairest summary of Wandry,” Aucutt writes, is that it “undeniably” extends the scope of prior cases concerning a charitable “pourover” clause. Unlike those cases, however, “Wandry does not represent a consistent body of Tax Court and appellate court jurisprudence, and, as even the charitable cases show, the IRS does not approve of the defined-value technique. Because it is also fair to speculate that many year-end 2012 gifts have followed the pattern of a ‘Wandry formula,’ we should not be surprised to see future cases involving Wandry types of defined-value gifts.”