MYTH #1: “My LLC avoids probate.”

Issue: Many business owners assume that forming an LLC keeps their business out of probate. But if the LLC interest is held in your personal name, it’s still part of your estate and must pass through probate.

Code: Uniform Probate Code §2-101 and IRC §2033 state that all property owned at death — including business interests — is part of the gross estate.

Case: In Estate of Giustina, the decedent’s LLC interest was valued at full fair market value. Because the interest remained in his name, it triggered estate inclusion and was subjected to both estate tax and probate.

Conclusion: To avoid probate, move your LLC interests into a funded trust or entity with succession provisions. Avoid holding business assets personally.

MYTH #2: “Assigning my business to a trust removes it from my estate.”

Issue: Many think they can just assign ownership to a trust on paper and be done. But if they retain control or benefit, the IRS still counts it in the estate.

Code: IRC §2036 allows the IRS to include assets in the estate if the decedent retained control or benefit — even if technically transferred.

Case: In Estate of Strangi, although business assets were placed in a family limited partnership and assigned to a trust, the decedent retained too much control. The IRS brought it all back into the estate.

Conclusion: A transfer must be complete. That means filing Form 709, giving up control, and formally retitling ownership — not just "assigning."

MYTH #3: “My buy-sell agreement sets the business value for estate taxes.”

Issue: Business owners often assume a fixed-price or internal agreement will limit IRS valuation. It won’t - unless it meets specific criteria.

Code: IRC §2703 says buy-sell agreements are disregarded unless they’re (1) bona fide, (2) at arms-length, and (3) enforced in practice.

Case: In True v. Commissioner, the court rejected the buy-sell price because the agreement hadn’t been enforced through real transactions or appraisals.

Conclusion: Update and enforce buy-sell agreements, include third-party appraisals, and prove commercial reasonableness.

MYTH #4: “Freeze techniques like GRATs and FLPs remove value from my estate.”

Issue: These structures only work if executed and managed properly. Otherwise, they backfire.

Code: IRC §§2036 and 2038 include assets where the decedent retains benefit or control — even inside a FLP or GRAT.

Case: In Estate of Maggos, the IRS argued — and won — that the decedent retained too much control over the FLP assets. The structure lacked business substance.

Conclusion: Use independent trustees, formal management, and economic substance to support freezes. Retain no benefit unless structured carefully.

MYTH #5: “I can file my estate tax return whenever I want.”

Issue: Missing IRS deadlines means you lose powerful tax strategies — like alternate valuation.

Code:

IRC §2032 only allows alternate valuation if Form 706 is filed within 9 months of death.

Case:

In Estate of Eddy, the estate filed late, and the IRS refused alternate valuation — increasing taxes by millions.

Conclusion:

Always file estate tax returns within 9 months, or request a timely extension. Deadlines are unforgiving.

MYTH #6: “My private company shares don’t need frequent valuation.”

Issue: The IRS doesn’t guess — they assign full FMV if you don’t provide valid numbers.

Code:

IRC §2031(b) requires that closely held stock be valued using comparable market transactions or qualified appraisals.

Case:

In Estate of Anderson, the estate failed to support its discount claims. The IRS used full market value and denied the discounts.

Conclusion:

Get annual 3rd-party valuations, especially before making gifts, sales, or upon death.

MYTH #7: “Having a will avoids probate.”

Issue: Wills don’t avoid probate — they initiate it.

Code:

UPC §3-101 clarifies that wills simply direct the probate process. Only assets already outside the estate avoid it.

Case:

Every jurisdiction confirms: wills = probate. The only way around it is non-probate tools like funded trusts and TOD deeds.

Conclusion:

If you want privacy and efficiency, use funded revocable trusts, TOD titles, or entity-based ownership.

MYTH #8: “My family can keep the business running after I die.”

Issue: Without legal authority, banks, partners, and courts will block access.

Code:

UPC §3-307 requires formal court appointment before anyone can act as executor or administrator.

Case:

In many real-life cases, families couldn’t pay bills, access accounts, or make decisions until probate court appointed someone — which can take months.

Conclusion:

Use succession clauses in your operating agreement or trust documents. Name successors and give them legal rights ahead of time.

MYTH #9: “Life insurance in a trust is always estate-tax free.”

Issue: If premiums are paid incorrectly or if the grantor retains power, the policy may be included.

Code:

IRC §2042 includes life insurance in the estate if the decedent retained “incidents of ownership.”

Case:

In dozens of ILIT audits, IRS pulled insurance proceeds back into the estate when the grantor paid premiums personally or retained power to change beneficiaries.

Conclusion:

Pay premiums through the trust, file Crummey notices, and relinquish control. File Form 709 for premium gifts

MYTH #10: “I can give business interests to my kids without telling the IRS.”

Issue: If you don’t document and report the gift, the IRS ignores it — and treats it as part of your estate.

Code:

IRC §2511 requires all gifts (cash or not) to be reported via Form 709.

Case:

In Church v. U.S. and Giselman v. Commissioner, unreported gifts were clawed back into the estate and taxed.

Conclusion:

Always file Form 709, get a professional valuation’

MYTH #11: “My real estate LLC automatically passes to my heirs.”

Issue: Ownership held in your name—even inside an LLC—still triggers probate.

Rule: Uniform Probate Code §2-101 includes all titled interests not held in a trust or TOD structure in the estate.

Case: In Estate of Steinberg, an improperly structured LLC and poorly drafted estate documents led to court involvement and additional estate tax.

Conclusion: Assign LLC membership interests to a funded trust or use transfer-on-death mechanisms where allowed.

MYTH #12: “Phantom equity doesn’t get taxed at death.”

Issue: The IRS can still assign value to any economic interest you control or benefit from.

Rule: IRC §§2036 and 2038 allow inclusion of interests where benefit or control was retained.

Case: In Estate of Dorn, the IRS included equity-like rights in a phantom structure that lacked business substance.

Conclusion: Formalize phantom equity with business purpose, enforceable agreements, and valuation support—or risk full inclusion.

MYTH #13: “I’ll get a valuation later when I need it.”

Issue: Delayed valuations leave you exposed to inflated IRS estimates.

Rule: IRC §§2031 and 2032 govern how fair market value is determined for estate tax.

Case: In Estate of Robinson, a lack of timely valuation and documentation forced the IRS to use default FMV with no discounts allowed.

Conclusion: Don’t wait. Get valuations done pre-death and with each gift or equity transfer. File Form 709 with proper backup.

MYTH #14: “If I didn’t receive money, it’s not a gift.”

Issue: Gifts are not limited to cash or received funds. Non-cash transfers count too.

Rule: IRC §2511 includes transfers of property, rights, or business interests as gifts—whether or not money changed hands.

Case: In Church v. U.S., the taxpayer transferred business assets but failed to document or report them. The IRS ruled it a taxable gift and added penalties.

Conclusion: Every business interest given away—even informally—needs Form 709, an appraisal, and gift intent documentation.

MYTH #15: “My shareholder agreement locks the business value.”

Issue: IRS does not accept internal pricing unless strict legal and commercial tests are met.

Rule: IRC §2703 limits recognition of buy-sell values unless they are binding, bona fide, and arms-length.

Case: In Littick v. Comm., the agreement passed IRS scrutiny only because it had been enforced over time and used third-party valuation.

Conclusion: Update your agreements regularly. Use independent appraisers. Make sure you’ve actually used the pricing in real transactions.

MYTH #16: “I own private stock — so it’s hard to value and the IRS won’t bother.”

Issue: IRS will assign fair market value to closely held shares—and often without discounts.

Rule: IRC §2031 governs how private stock is valued for estate inclusion.

Case: In Estate of Klauss, the IRS rejected the taxpayer’s valuation and applied its own full FMV using public comparables.

Conclusion: Get valuations from professionals familiar with IRS discount guidelines. Keep board minutes and ownership ledgers updated.

MYTH #17: “Our internal value agreement is enough for tax purposes.”

Issue: Internal values aren’t binding unless followed through and backed up.

Rule: IRC §2703 ignores internal-only agreements without arms-length enforcement.

Case: In True v. Commissioner, the IRS threw out a buy-sell valuation because it hadn’t been enforced with actual transactions.

Conclusion: Enforce your values with real actions—purchases, redemptions, and appraisals. Don’t rely on a dusty document.

MYTH #18: “My operating agreement doesn’t need a death clause.”

Issue: Without a death or transfer clause, state law takes over—and that usually means probate.

Rule: Default state laws under Uniform LLC Acts and UPC §2-101 dictate probate if no override exists.

Case: In Maxine Robinson v. Comm., poor drafting caused a probate-triggered valuation and tax dispute.

Conclusion: Include clear successor clauses in your LLC and partnership agreements. Use “transfer on death” language where allowed.

MYTH #19: “I left the business to my kids — the S-corp can continue.”

Issue: S-corp shares can only be owned by certain qualified persons or trusts.

Rule: IRC §1361(b)(1)(B) restricts S-corp ownership to individuals and certain trusts.

Case: IRS rulings have disqualified S-corp status where heirs or LLCs were named as owners, triggering full corporate taxation.

Conclusion: Use a QSST (Qualified Subchapter S Trust) or Grantor Trust to receive S-corp shares. Don’t name multiple heirs directly.

MYTH #20: “Registering IP in my LLC protects it from tax or estate inclusion.”

Issue: The IRS looks through the structure to actual control.

Rule: IRC §§2036 and 2038 treat assets as includable if the decedent retained benefit, even via entity.

Case: In Thompson v. Comm., the taxpayer controlled IP held in an LLC. IRS treated it as estate property because the decedent retained benefit and use.

Conclusion: Separate IP ownership from use. License it to the operating company. Use irrevocable trusts where needed to disconnect control.

MYTH #21: “My kids are on the bank account, so they’ll just take over the business.”

Issue: Joint bank accounts do not grant legal control over an LLC, corporation, or business assets.

Code:

State business laws and the Uniform Probate Code treat business ownership separately from personal accounts.

Case:

In real-world probate disputes, joint accounts were frozen, and courts ruled that only operating agreements or legal succession documents determine control.

Conclusion:

You need a business succession plan, not just joint access. Amend your operating agreement and fund a trust to ensure continuity.

MYTH #22: “If I die owning crypto, my kids will inherit it automatically.”

Issue: Without keys, crypto is lost. Without planning, it’s also taxable.

Code:

IRC §2031 includes all property with ascertainable value in the estate — including crypto.

Case:

In IRS v. Coinbase, the IRS forced the release of user data, proving it tracks crypto. Countless estates have lost access due to missing keys.

Conclusion:

List your wallets in a trust schedule, store access securely, and use digital inheritance tools. Crypto without a plan = gone forever.

MYTH #23: “My revocable trust protects my business from estate taxes.”

Issue: Revocable trusts avoid probate but not estate tax inclusion.

Code:

IRC §2038 includes any asset over which the decedent had the power to revoke or amend.

Case:

In Estate of German, a revocable trust was included in the estate because the grantor retained full control.

Conclusion:

Use irrevocable trusts or entity structures if you want estate tax reduction. Revocable = included.

MYTH #24: “My family can decide what to do with the business after I’m gone.”

Issue: No instructions = family fights, valuation disputes, and IRS problems.

Code:

Lack of a formal plan triggers court supervision under UPC §3-112 and IRC §2031.

Case:

In Estate of Gallo, lack of buy-sell agreement caused heirs to litigate valuation, costing millions in legal fees and taxes.

Conclusion:

Create a binding succession plan—buy-sell agreement, valuation schedule, and trustee authority—before it’s too late.

MYTH #25: “I only gave my business away on paper — it’s not a real gift.”

Issue: IRS looks at substance over form.

Code:

IRC §2511 and the "substance over form" doctrine treat informal transfers as gifts if control or value is passed.

Case:

In Estate of Linton, the court ruled a paper-only transfer was a gift, even though the parent retained control.

Conclusion:

Document gifts. File Form 709. And ensure you don’t retain powers or the IRS will ignore the paper trail.

MYTH #26: “I’ll gift my business a few days before I die.”

Issue: Deathbed transfers are often reversed by the IRS.

Code:

IRC §2035(a) includes gifts made within 3 years of death if connected to life insurance or certain transfers.

Case:

In Estate of Wheeler, last-minute gifting to avoid estate inclusion was denied.

Conclusion:

Gift early and properly, with legal separation of control. Deathbed planning almost always fails under audit.

MYTH #27: “I can be trustee of my own irrevocable trust and stay protected.”

Issue: IRS treats retained control as ownership.

Code:

IRC §§2036 and 2038 allow inclusion if the grantor controls income or distribution decisions.

Case:

In Estate of Powell, the decedent remained decision-maker. The court included all trust assets in her estate.

Conclusion:

Use independent trustees or limited powers. Control = inclusion. Be strategic.

MYTH #28: “My S-corp shares can go to my kids through my will.”

Issue: S-corp rules limit ownership to individuals and specific trusts.

Code:

IRC §1361 requires that shareholders be individuals, grantor trusts, or QSSTs.

Case:

Numerous IRS private rulings show S-corps lose status if shares pass to ineligible heirs or entities.

Conclusion:

Use QSSTs or Grantor Trusts. Don’t leave S-corp stock through your will or to multiple heirs without structure.

MYTH #29: “I’ll just gift the business each year under the $18,000 limit and avoid estate tax.”

Issue: Lack of documentation and valuation can kill this strategy.

Code:

IRC §2503(b) allows annual exclusion gifts only if they’re present-interest and fully documented.

Case:

In Hackl v. Commissioner, the court denied exclusion because the interest wasn’t immediately usable.

Conclusion:

Gift appraised interests with full legal rights. And file Form 709 even if you believe the gift is “excluded.”