In the area of transfer taxes, there are few cases that can change the playing field. Every once in a while, however, a case comes along that does just that. And that case is Wandry v. Commissioner, which was rendered just last year. It provides a potential methodology for taxpayers to protect themselves from unanticipated transfer tax.
The Wandry facts are straightforward. To avail themselves of valuation discounts associated with the transfer of closely held business interests, the taxpayers in Wandry established a limited liability company and decided to capitalize upon the gift tax annual exclusion (at that time, $11,000 per donee) and the lifetime gift tax exemption (at that time, $1 million). The taxpayers made gifts that totaled these dollar amounts and did so by making gifts of $261,000 to each of their four children ($11,000 qualifying for the gift tax annual exclusion and $250,000 qualifying for the taxpayer’s lifetime exemption) and $11,000 to each of five grandchildren (qualifying each of these transfers for the gift tax annual exclusion). To fund each of the foregoing gifts, rather than transferring actual cash, the taxpayers transferred hard-to-value membership interests in their limited liability company.