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Joe Paterno Transfers His Interest in His House to His Wife for $1: Legitimate or Not?

The Penn State scandal has dominated media headlines in recent weeks.  While the vast majority of the coverage has been directed toward the alleged criminal acts and potential cover-ups, there has been a fair amount of buzz surrounding Joe Paterno’s July 2011 transfer of his entire interest in his home to his wife for $1.  Many have speculated that Joe Paterno had no legitimate reason to transfer sole ownership of the house to his wife, and that he must be trying to shield assets from potential civil litigation.  While I will not speculate as to Joe Paterno’s rationale for making such a transfer, I believe it is incorrect to take the position that there is no legitimate reason for doing so.  In many instances, spouses can reduce their potential estate tax burden by making inter-spousal transfers of assets.

The following is a simple example of how an inter-spousal transfer can

Methods of Giving

Methods of Giving

November 16, 2011

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

As we approach Thanksgiving and the holiday season many of us turn our thoughts to gift giving to family and loved ones. The Federal gift tax system allows us some opportunities to do such “gifting” in a tax free manner. A few states impose independent state gift taxes, so an expert in your state should be consulted before considering any of these gifting transactions. Each individual has a total of $5,000,000 he can give away during his lifetime before owing any gift tax. However, there are several gifting opportunities which do not count as part of your $5,000,000 lifetime total. It is as if the Federal tax law has deemed them non gifts. Present interest gifts of $13,000 in 2011 and 2012 to any number of recipients are not subject to gift

Community Property Recognized in Post-Death Division of IRA

In PLR 201125047, the IRS allowed a surviving spouse to roll over a decedent’s entire IRA to the surviving spouse’s IRA when the surviving spouse exchanged her community property interest in other property for the decedent’s community property interest in his IRA, as authorized under applicable state law.

The decedent, who we will call David, resided in a community property state with his wife, whom we will call Susan, to whom he had been married for 21 years.  David had failed to name a beneficiary of his IRA, so that when he died, the beneficiary was David’s estate.  David and Susan had created a community property trust, and David’s Will caused the IRA to become an asset of this trust.

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