On our weekly radio show this morning, Matt Dana, Rilus Dana, and I had a great discussion on what we’re calling our “Squeeze, Freeze, and Sneeze” Strategy. You won’t actually find those terms laid out like that in the tax code, but it summarizes a combination of several techniques that we use when working with our clients in trying to minimize the death taxes that will be paid to the IRS when someone passes away. Here’s a brief summary of the strategy, and to hear more, go to our “Archived Radio Show” page and listen to our discussion:
Squeeze – using a Family Limited Partnership (FLP) we are able to “squeeze” the value of an estate, reducing or eliminating the amount of death tax. For example, if a client has a $10,000,000 estate, we can create a FLP and look the IRS directly in the eye and tell them that the estate is worth only $7,000,000. This strategy alone could save the family $1,200,000 in death taxes.
Freeze – once the estate has been squeezed by the FLP, we “freeze” the value for death tax purposes, meaning that all of the appreciation and growth of the assets after we create the FLP is not subject to death tax. This is accomplished by using techniques such as gifts to certain trusts and/or installment sales of FLP interests.
Sneeze – if the IRS doesn’t agree with the tax savings accomplished through the squeeze and freeze, we “sneeze” right in their face and remove any incentive for them to audit the estate tax return. We do this by including a provision in the estate plan that says that any increase in the estate due to an IRS audit doesn’t result in additional taxes paid to the IRS, but instead results in a gift to charitable organization of the client’s choice. Since the IRS has nothing to gain from an audit, they’ll likely not spend much time with our client’s estate tax return, and focus efforts on other issues that will result in increased tax revenues.
While we like the simplicity and silliness of “Squeeze, Freeze, and Sneeze,” the actual strategies are very technical and complicated, and should not be attempted without qualified legal representation. To discuss these strategies in more detail, give us a call at 480-515-3716 and set up an appointment with one of our Tax Nerds.
Written by Attorney Trevor Whiting