Structuring Defined Value Clauses in Trust Transfers: Formula Allocations and Price Adjustment Clauses

Recording of a 90-minute CLE/CPE webinar with Q&A

Conducted on Tuesday, July 18, 2017
Recorded event now available

This CLE/CPE webinar will provide estate planning counsel and advisers with a comprehensive and practical guide to successfully structuring defined value formula clauses to avoid gift tax consequences on asset transfers. The panel will provide specific guidance on making formula allocations to withstand IRS scrutiny and identify conditions in transfer structures that trigger gift tax imposition.


The use of defined value clauses to mitigate gift tax impact on the transfer of hard-to-value assets has long been an item of IRS scrutiny. While the Service has lost a number of tax court challenges to defined value clauses, the Service continues to take an adverse audit position and to seek suitable new cases to take to court.

Several different types of defined value clauses have withstood IRS scrutiny, utilizing both formula allocations and price adjustment clauses. Critical to structuring a defined value clause is ensuring that the transfer was implemented properly and that no pre-arrangement exists between the transferor and the transferee.

In the current uncertain planning environment, with potential major changes and possible elimination of the estate tax with or without its replacement by capital gains recognition, it is more important than ever that lifetime transfers be protected as much as possible from unintended gift tax. A well-designed defined value clause is a crucial element of that protection.

Because the Service will likely continue to take the approach of scrutinizing the construction and implementation of defined value clauses, estate planners must ensure such clauses are properly drafted and strictly implemented according to their terms.

Listen as our experienced panel provides comprehensive guidance to structuring defined value clauses that will withstand IRS scrutiny and challenge.

We will review specific language designed to be as robust as possible if challenged yet flexible enough to be used in multiple contexts.


  1. Types of defined formula value approaches
    1. Formula allocation clause based on subsequent agreement of involved parties
    2. Formula allocation clause based on final values as determined for gift tax purposes
    3. Price adjustment clauses
  2. Impact of Belk holding (4th Cir. 2014)
  3. Defined value clauses on IRS 2016-17 Priority Guidance Plan
  4. Exercising substitution powers using a defined value clause
  5. Traps to avoid


The panel will review these and other key issues:

  • What are the grounds for IRS challenges of defined value clauses?
  • What types of defined value clauses have failed to withstand IRS challenges?
  • How to best structure defined value clauses
  • How to structure defined value clauses involving non-taxable transfers other than to public charities

Learning Objectives

After completing this course, you will be able to:

  • Identify defined value clauses that have withstood IRS challenge
  • Discern a properly structured defined value clause involving charitable entities in allocating taxable and non-taxable values
  • Recognize defects in savings clauses and subsequent allocation clauses that leave transaction subject to gift tax
  • Identify clauses that will require gift tax filings


Paige K. Ben-Yaacov, Partner
Baker Botts, Houston

Ms. Ben-Yaacov’s practice focuses on estate planning and estate administration for high net worth individuals, with a particular focus on those who have complex trust structures or who own interests in closely-held businesses, family limited partnerships, real estate and oil and gas assets. She helps clients develop and implement strategies to transfer assets to beneficiaries to minimize federal gift and estate taxes, including the use of defined-value formulas, sales to intentionally defective trusts, reorganizing closely-held businesses, the creation of generation-skipping trusts, GRATs, QPRTs, family limited partnerships, and buy-sell agreements.

Patrick J. Duffey, Attorney
Holland & Knight, Tampa, Fla.

Mr. Duffey focuses his practice on complex estate planning, trust administration and probate matters. He provides sophisticated estate planning for high-net-worth clients, with a focus on lifetime tax minimization strategies, including the use of revocable and irrevocable grantor and nongrantor trusts, grantor-retained annuity trusts, irrevocable life insurance trusts, qualified personal residence trusts, closely held entities, installment notes and defined-value clauses. He also represents fiduciaries in a number of matters, including fiduciary litigation, homestead controversies, decanting and various methods of trust modification. He has experience overseeing a range of tax filings, including forms 1041, 706 and 709.

Jonathan J. Rikoon, Partner
Loeb & Loeb, New York

Mr. Rikoon practices in the areas of trust and estate planning, administration and litigation. He engages in sophisticated estate and tax planning for wealthy individuals and families, preparation of wills and trusts and the administration of trusts and estates. He helps to establish various tax-efficient multi-tier family, business and investment vehicles, such as partnerships, limited liability companies and closely held corporations with trust ownership, and he structures third-party business transactions to facilitate tax and estate planning. He pioneered the development of estate planning techniques customized for private equity fund principals and hedge fund managers, and he has written and presented on that topic.

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Customer Reviews

The seminar was very informative and easy to understand.

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Anderson Hunter Law Firm

Better than I expected. Well done on both subject matter and production quality.

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Gordon, Fournaris & Mammarella

The webinar offered excellent insight into some specific areas.

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Virginia Beach Law Group

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Wolff & Samson

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Estate Planning Advisory Board

Gary D. Altman

Principal and Founder

Altman & Assoc.

Brian M. Annino


Annino Law Firm

Richard S. Franklin


Franklin Karibjanian & Law

J. Leigh Griffith

Partner and Practice Group Leader - Tax

Waller Lansden Dortch & Davis

L. Paul Hood, Jr.

Consultant, Speaker and Author

The University of Toledo Foundation

Denise L. Iocco


Windels Marx Lane & Mittendorf

Donna J. Jackson


Donna J. Jackson, Attorney at Law

Salvatore J. LaMendola


Giarmarco Mullins & Horton

Edwin P. Morrow, III, Esq.

Senior Wealth Specialist

Key Private Bank Wealth Advisory Services

Scott K. Tippett


The Tippett Law Firm

Susan M. von Herrmann


Perkins Coie

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