DALLAS, TX--(Marketwired - Jun 27, 2013) - Eminent Dallas Tax Attorney Joe B. Garza speculates on the Bill Davidson estate fiasco, in which the IRS believes that the late Detroit Pistons owner knowingly undervalued his assets in an effort to protect his beneficiaries from the federal estate tax. As the struggle for over $1.9 Billion of Davidson's estate heightens, Garza suggests that a strong estate plan with knowledgeable leadership is more important than ever.
After Davidson's death in 2009, the IRS spent nearly four years reviewing the actual value of his assets, particularly that of his flagship company, Guardian Industries. In last-minute attempts to securely transfer his estate to his family, Davidson used financial mechanisms such as self-cancelling installment notes (SCINs): perfectly legal transactions in which the recipient is only required to fulfill repayment to the benefactor until the benefactor's death. Mechanisms like these allow people like Davidson to legally circumvent estate and gift taxes while preserving the total amount that is transferred. In Davidson's case, these transfers were executed at severely undervalued rates, with the IRS estimating that a single share of Davidson's company stock could have been worth more than $1,500 above what his accountants disclosed.
"What makes this case a difficult one is how vague the notion of actual worth is when it comes to privately-held companies like Guardian Industries," explained Dallas Lawyer Joe Garza. "It's difficult to determine the objective value of privately-held stock, since there's not necessarily a market available to measure fair price. Private companies will typically evaluate their worth by comparison with a public competitor, but [Guardian Industries] doesn't face many similar companies in the public sector; the problem that [Davidson]'s heirs face is whether their opponents interpret the discounted pricing as deliberate. This particular case highlights the extreme imperative of thoughtful and thorough estate planning with every variable taken into consideration."
In defense of the recorded value of the transferred stock, the family insists that Davidson's death coincided with an auto industry dissolving from the economic collapse, accounting for the value discrepancy. "The timing of his death is certainly interesting and might even help justify the depreciation of the stock," Garza continued. "However, his advisors' behavior seemed very rushed; the apparent desperation of their maneuvers so close to Davidson's is what's bringing the validity of the estate under such scrutiny." A seasoned tax and estate attorney, Joe Garza is convinced that it's always best for his clients to prepare an inheritance well before the transfer is necessary.
Although the nearly $2 Billion IRS receipt makes the Davidson case one of the largest of its kind, Attorney Garza warns all of his Dallas clientele that it's important to be proactive against the estate tax. "This kind of post-mortem threat to a person's estate is not uncommon," Garza concluded. "Without careful legal consultation a person's heirs might face the financial backlash that comes from haphazard or otherwise hasty estate planning. A qualified attorney will ensure that your assets are preserved after they have been transmitted to your heirs."
Joe B. Garza is a Dallas Tax Attorney and senior partner at Garza & Harris, Ltd. Learn more about his estate planning services at http://www.garzaharris.com