Estate Tax Scams

In today's Wall Street Journal (subscribers only), a retired estate tax auditor, Lorraine F. New, recalls the devious efforts made to avoid tax.

Turning one-night stands into "marriages" in order to claim the marital deduction is one popular dodge.

And then there are gifts:

Shrinking the taxable estate by making gifts to family is a tried-and-true method for estate planning. But the unscrupulous can exploit it.

The federal gift tax exemption allows a person to give away a lifetime total of up to $1 million to friends, relatives or others without paying federal tax. One may also give away an unlimited number of annual gifts of $12,000 to any number of individuals without eating into the $1 million gift exclusion.

One case -- still waiting to be resolved when Ms. New left the IRS -- involved a man with power of attorney for his seriously ill aunt. On a Friday, he wrote a slew of checks in her name to relatives and even family members of his attorney. The woman died that Sunday. On Monday, her nephew appeared at her credit union to transfer $100,000 into her checking account to cover the checks. When questioned, he told the teller his aunt was still alive.

The teller, on lunch break, spotted an obituary of the woman and stopped the check.