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Gifts not valid under state law; estate tax is increased.

Three years before his death, Merl Townsend executed a durable power of attorney, appointing his son George as attorney in fact. While the power of attorney specifically authorized George to do various things, it did not specifically authorize making gifts on Merl's behalf.

George made gifts of almost $500,000 of Merl's property during the three years before Merl's death. The transfers, made to George himself and to other family members, were an attempt to reduce the estate tax that would be imposed on Merl's estate after his death by taking advantage of the maximum $1 0, 000 yearly gift tax exclusion.

When George filed an estate tax return after his father died, he did not include in the gross estate the gifts made during the three years under the power of attorney.

The IRS audited the return and claimed these gifts were invalid. It included the gifts in the gross estate, thereby increasing the estate tax by about $175,000.

Result: For the IRS. The gifts were not valid. Nebraska law requires that a power of attorney explicitly authorize making gifts. Therefore, the amounts are includable in the gross estate under IRC section 2038.

* Townsend (DC Neb., 1995).

Edited by Anne Wagenbrenner, JD, LLM, editor, AICPA client newsletters.
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Title Annotation:Townsend case
Author:Wagenbrenner, Anne
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Jul 1, 1995
Words:209
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