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A properly drafted and followed formula clause in a will or gift transfer document can limit liability for estate or gift taxes. If the IRS or a court later redetermines the value of the transfer, the formula clause acts to adjust the amount of assets transferred to correspond to a specified dollar value.

[/ref] A DVC is a formula clause that allows the taxpayers to determine a gift's fair market value, for federal gift tax purposes, by referencing a fixed dollar amount rather than transferring a fixed quantity of property.

To ensure a desired transfer tax outcome, estate planners have employed what's referred to as a “defined value formula clause,” in which the amount transferred in a gift or bequest is based on a value as finally determined for transfer tax purposes.

The clause at issue in King adjusted the purchase price of a specified number of corporate shares sold from a taxpayer to trusts created for the benefit of his children. The clause was triggered if the IRS determined the value of the shares to be different from the sales price.

A formula clause gives an amount to family or friends up to whatever the applicable lifetime exemption from federal gift and estate taxes is at the time of the decedent's death. It is written in such a way that you are giving away a dollar value of an asset.

The clause at issue in King adjusted the purchase price of a specified number of corporate shares sold from a taxpayer to trusts created for the benefit of his children. The clause was triggered if the IRS determined the value of the shares to be different from the sales price.