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1. Myth: The Giustina Case – Your LLC Protects You From Probate (It Doesn’t)

Key Concept: Business ownership at death
Sub-Concept: LLC interests still pass through probate
IRS or Law Link: IRC Section 2033
Case Study: Estate of Giustina v. Commissioner (2016)

Summary
• The IRS ruled that LLC interests are part of the estate even if the business has multiple members.
• Lack of formal planning forced valuation at higher levels than expected.
• The LLC structure offered no protection from probate because ownership was in the decedent’s name.

Key Takeaway and Action Steps
Operating agreements do not replace estate planning. Assign LLC interests to a trust to avoid probate delays and valuation problems.
Hypothetical: A ranch owner dies holding the LLC interest personally. Family waits 14 months for probate before the business can operate normally.

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2. Myth: The Strangi Case – Transferring Your Business Removes It From Your Estate

Key Concept: Estate inclusion
Sub-Concept: Retained control over business assets
IRS or Law Link: IRC Section 2036
Case Study: Estate of Strangi v. Commissioner (2003)

Summary
• IRS ruled that the business transfer was incomplete.
• The decedent still benefited from partnership assets.
• The entire business was pulled back into the taxable estate.

Key Takeaway and Action Steps
Do not give away a business while continuing to use it personally. Transfer must be real and documented.
Hypothetical: A founder “gifts” an LLC to children but still signs contracts and manages revenue. IRS collapses the structure.

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3. Myth: True v. Commissioner – A Buy-Sell Agreement Saves You From IRS Valuation

Key Concept: Business valuation
Sub-Concept: Buy-sell agreements must meet strict requirements
IRS or Law Link: IRC Section 2703
Case Study: True v. Commissioner (2001)

Summary
• The buy-sell agreement was outdated and unenforced.
• The IRS rejected the valuation price.
• The estate owed significantly more tax than expected.

Key Takeaway and Action Steps
Update buy-sell agreements every 2 to 3 years. Tie valuation formulas to market data.
Hypothetical: A 10 million business has a buy-sell price set at 3 million years ago. IRS taxes it at 12 million instead.

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4. Myth: Maggos Case – Your Freeze Strategy Is Automatically Valid

Key Concept: Estate freeze
Sub-Concept: Improper documentation
IRS or Law Link: IRC Sections 2036 and 2038
Case Study: Estate of Maggos (2000)

Summary
• Freeze gift failed due to retained control.
• IRS treated the freeze as an incomplete gift.
• Estate owed tax on the full business value.

Key Takeaway and Action Steps
Estate freezes must be structured carefully with independent trustees and formal valuation.
Hypothetical: Parents “freeze” 8 million in business assets but still make all decisions. IRS invalidates the freeze.

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5. Myth: Eddy Case – Missing the Nine-Month Deadline Does Not Matter

Key Concept: Alternate valuation
Sub-Concept: Missed filing deadline for Section 2032
IRS or Law Link: IRC Section 2032
Case Study: Estate of Eddy (1991)

Summary
• Estate missed the alternate valuation deadline.
• Higher values increased estate tax liability.
• IRS refused late election.

Key Takeaway and Action Steps
Mark all estate deadlines on a master checklist. File Form 706 timely.
Hypothetical: A stock portfolio drops 2 million in value after death. Family misses the deadline and pays tax on the higher value anyway.

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6. Myth: Anderson Case – You Can Skip Business Valuation

Key Concept: Business valuation
Sub-Concept: Lack of appraisal
IRS or Law Link: IRC Section 2031(b)
Case Study: Estate of Anderson (1999)

Summary
• Estate provided no formal valuation.
• IRS used its own experts and increased taxable value.
• Family paid unnecessary taxes.

Key Takeaway and Action Steps
Always obtain a certified business valuation at death or every three years.
Hypothetical: Restaurant chain valued informally at 5 million is taxed at 9 million because IRS assigns its own number.

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7. Myth: A Will Avoids Probate

Key Concept: Probate law
Sub-Concept: Wills require court supervision
IRS or Law Link: UPC Section 3-101
Case Study: Estate of Fick (2019)

Summary
• Will required full probate before heirs could act.
• Probate delayed business operations.
• Assets could not transfer until court approval.

Key Takeaway and Action Steps
Use a fully funded trust to bypass probate entirely.
Hypothetical: Founder dies with a simple will. Business bank account is frozen until probate judge signs orders.

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8. Myth: Your Family Can Run the Business Without Legal Authority

Key Concept: Successor authority
Sub-Concept: Missing fiduciary appointments
IRS or Law Link: UPC Section 3-307
Case Study: Family Business Probate Dispute (multiple rulings)

Summary
• Heirs could not operate business or sign contracts.
• Vendors refused to transact.
• Probate court had to appoint a personal representative.

Key Takeaway and Action Steps
Name successor managers in the operating agreement and trust.
Hypothetical: CFO resigns after founder dies. Children have no legal authority to replace them.

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9. Myth: ILIT Life Insurance Is Automatically Tax-Free

Key Concept: Life insurance taxation
Sub-Concept: Estate inclusion
IRS or Law Link: IRC Section 2042
Case Study: Estate of Becker (1986)

Summary
• ILIT failed because insured retained policy rights.
• IRS included full death benefit in the estate.
• Improper premium payments triggered inclusion.

Key Takeaway and Action Steps
Never pay ILIT premiums personally. Do not retain policy rights.
Hypothetical: A doctor’s 4 million policy returns to his estate due to retained control.

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10. Myth: The IRS Will Not Know About Gifts If You Skip Form 709

Key Concept: Gift taxation
Sub-Concept: Reporting failures
IRS or Law Link: IRC Section 2511
Case Study: Church and Giselman cases

Summary
• IRS identified unreported gifts via bank records.
• Failure to file triggered penalties.
• Gifts were treated as incomplete.

Key Takeaway and Action Steps
File Form 709 for all reportable gifts. Track transfers to trusts and LLCs.
Hypothetical: Parents fund a trust without filing Form 709. IRS taxes the transfer a decade later.

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