An Important Note: Have You Considered the Importance of Tax Analysis?
Tax savings often play an important role in facilitating settlements in trust and probate litigation. Parties who otherwise might not be willing to settle a case may agree to settle if they can be shown that a portion of the settlement will be provided by tax savings. Estate tax savings are usually paramount; however, income taxes may become a major factor as well.
At the very outset of litigation, client and counsel should carefully analyze the estate and income tax consequences of each viable claim. This analysis will often reveal substantial differences in after-tax benefits of the various potential claims. Although it is common practice for parties to plead all viable claims, a tax analysis will show which claims truly deserve to be developed. High priority should be given to claims that involve dramatic tax savings, even if the claims may initially seem weak.
The magnitude of the tax swings in probate and trust cases frequently presents a unique opportunity, not usually available in other civil cases, to structure a settlement that uses tax savings to bridge the gap between the parties. As the case is developed, it often becomes apparent that the most secure way to achieve important tax savings is through settlement rather than continued litigation. Thus, the tax analysis will help not only to shape the overall case strategy and guide the allocation of litigation resources but also will reveal the best settlement structure and may provide the critical element to reaching settlement.