Implied agreement triggered estate inclusion of FLP assets.

In two related cases, Est. of Austin Korby, TC Memo 2005-103, and Est. of Edna Korby, TC Memo 2005102, the Tax Court held that the fair market value of assets a husband and wife transferred to a family limited partnership (FLP) were includible in their respective estates under Sec. 2036(a)(1), because the facts surrounding the transfer, and the parties' subsequent actions, pointed to an implied agreement to renjoyment of the income from the property.

Facts

The taxpayers, who were in poor health, transferred almost all of their assets (except for their personal residence and a few other assets) to a FLP. In turn, the FLP paid many of the taxpayers' personal expenses (e.g., utility, insurance and property tax bills) and made significantly disproportionate distributions to them. The Tax Court found these facts evidenced an implied agreement for the transferors to retain enjoyment of the income from the property.

Abraham

In another recent case, Est. of Ida Abraham, 5/25/05, the First Circuit, affirming the Tax Court (TC Memo 2004-39), held that the value of property transferred on behalf of an incapacitated individual under court supervision to FLPs was includible in her gross estate under Sec. 2036(a)(1). Inclusion was proper because there was an implied agreement to use the income from the transferred property for the Alzheimer's victim's support.

Consult Checklist

Although these cases had bad facts, they can still serve as a reminder not to commingle assets, improperly plan distributions or personally use FLP property. These areas are highlighted in the AICPA's Checklist of Issues to Consider in Yearly Administration of Family Limited Partnerships, at www.cpa2biz..com/NR/rdonlyres/efds63xigo24sd2vvdcmjo5ccaadqbckbckogemnvarpl 56u7gavcxplevahf7r2wqupq2ttk44e7fsuo/2036checklistkeyguidedonec.doc.