Defined-Value Clauses

Whenever a client wants to cap gift tax exposure, planners should consider using a defined-value clause implemented by use of an escrow trust.

A defined-value clause limits the quantity of assets gifted or sold until a final determination of value is made. Because of the Tax Court's 2003 decision in McCord v. Commissioner¹ and recent rulings by the Internal Revenue Service, practitioners are worried that courts might not respect these formula clauses. On the one hand