Bloomberg Business has reported that the estate of billionaire William Davidson has sued Deloitte LLP for $500 million (Aaron v. Deloitte Tax LLP, 653203/2015, NYS Supreme Court, NY County, Manhattan). Prior to his death, Davidson owned the Detroit Pistons NBA team and the Tampa Bay Lightning NHL team. Per Bloomberg, the estate is alleging that Deloitte failed to disclose the material risks of the tax plan that it recommended to Davidson. We are talking real money here. The IRS assessed the estate $2.7 billion in taxes. The estate eventually paid around $625 million.
While we have not yet had the opportunity to read the suit, it may be related to the use of family limited partnerships (FLPs) which can be heavily discounted to reduce the fair market value that is includable in the estate. The use of these FLPs has historically been an effective way to reduce federal estate taxes.
Why this case is of particular interest? It illustrates that . . .
- Tax laws are continuously evolving due to legislative changes and court cases. There apparently were a few court cases that were decided in favor of the IRS after the estate plan was written.
- Taxpayers should periodically contact their estate attorneys and inquire if their estate plan is current.
- When a consultant recommends a strategic plan to a client that is based on aggressive tax strategies and the underlying supporting positions for those strategies changes, doesn’t the consultant have a duty to contact the client?
Life is not static. There can be major life changing events in any person’s life (marriage, divorce, birth of child, death of a loved one, special needs, move to another state, etc.). It is VERY important that individuals periodically work very closely with their tax professionals and estate planning attorneys to ensure that they have properly planned for their demise and the welfare of their family. Unfortunately, very few attorneys include their client’s tax professional in these discussions. It is also VERY important that this planning be a multi-generational family affair. Perhaps Mr. Davidson would have been quite pleased to have saved over $2 billion in estate taxes; but other family members obviously were not. We have seen more than one family member in our practice who lamented the financial woes their spouse or parent left them to address because they assumed that the loved one had properly addressed their estate planning.
If you want to discuss your tax planning concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.