Dear Cyndy,

You may have noticed that I am afflicted with a compulsion
once I have broached a topic, to complete the argument, to leave
nothing significant unwritten, even when I have written too much
already. So also concerning the IRS special valuation rules
about transfers in trust. When I fell asleep last night some
very remarkable logical consequences of this rule occurred to me;
I promised myself not to forget them by morning, and I haven't.

The rule states, as I remember, - and I haven't looked it up again,
that when a person transfers to a family mamber a fractional interest
in trust, the value of the retained portion is deemed zero. My
threshold observation is the implicit contradiction: An interest
which is tranferred, whether fractional or whole, is transferred,
and by virtue of the transfer can't be retained. What the rule is
intended to mean, I believe, is that when W who owns Goodacre assessed
at one million dollars, securitizes Goodacre in a trust of 100 shares
of beneficial interest and gives 1 of these shares to son S, the 99
shares which remain to W are to be treated as having no value. For
estate and gift tax purposes the transfer is to be treated as of the
entirety of W's interest in Goodacre. That doesn't make any sense
either, until one remembers that the rule was drafted to raise taxes.
While the transfer of one share would be tax free because of the
$13000 per year gift tax exemption, the transfer of the remaining
99 shares would be subject to a tax of $544500.00, - and the raising
of taxes we must remember is the name of the game. Now the special
valuation rules include a provision, - the rationale of which I can't
fathom, - that they also apply to transfers between wife and husband;
and this provision opens a loophole of breathtaking dimensions. 
Consider the consequences of W's transfering one share or 1/10 of one
share or 1/100 of one share to H. This transfer is definitely not
taxable. In consequence, according to the special valuation rules
W's remaining interest would be zero, and W could therefore transfer
virtually the entirety of Goodacre to son S, to daughters D1, D2, and
if she wished, to grandchildren etc. without any gift or estate tax
liability.  The transfer to H of 1/100 of a share now valued at one
million dollars would seem to put H in an awkward situation, - when
he died, his 1/100 share of Goodacre would still have a value of one
million dollars, and his estate would be taxed accordingly, even though
that 1/100 share was practically worthless for being unmarketable:
Who would want to pay even 10 cents for it? But I have an idea. It
took me a few minutes to figure this out.

If the 1/100 share is worth a million dollars, H could donate a fraction
of it each year to his favorite 26 USC 501(c)3 tax exempt charity, in
an amount sufficient to extinguish his entire income tax liability
for that year.  Rather than bequeathing any residual to family members
S, D1, D2, etc to whom it would be taxed, H could give his 1/100 share
to a charity which would have no use for it other than, after a decent
interval, sell it for its market value of $25 to one of the interested
heirs. Thus Goodacre would have been bequeathed to S, D1, D2 etc without
payment of any estate or gift tax at all, and the extinction of income
tax liability to boot! Too good to be true? Almost certainly.

How can one find out? Consult an estate tax lawyer billing at $250 per
hour. His immediate reaction: jealousy, because he didn't think of it
himself.  His next reaction: timidity, - it can't be done because no
one else has thought of it. It's too dangerous to take an independent
position, especially where you can collect $250 per hour for parrotting
the conventional wisdom. If you press him, he'll tell you he can do more
research at $250 an hour, research which would be meaningless because
the reaction of the IRS in demanding taxes is 100% predictable, and as
for resort to the courts, where the chance of of nominal success might
be 25% the chance of actual failure is 100% because as distinct from
court decisions, legal fees are totally predictably ruinous.

Dear Cyndy, fortunately I'm not permitted to give you advice, because
if I were, I wouldn't know what to tell you. We're trapped. We're
trapped in an insane asylum which is run by the inmates, none of
whom have any idea of what the term "EXIT" means, not to speak of
knowing where to find it.

I very much hope you sleep well tonight. Give my best to Ned.

Jochen