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TRADITIONAL WEALTH
PRESERVATION PARTNERSHIPS
Traditional Limited Partnerships have been OVER-MARKETED as wealth transfer devises.
Family Partnerships are RED FLAGS for the Internal Revenue Service for abusive tax-free WEALTH TRANSFERS.
General Partners of Family Partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures.
The problem is avoided if the FAMILY, LLC™ is the
General Partner of your Family Limited Partnership.
Family partnerships have been widely over marketed as the devise of choice for transferring the "family business and other highly appreciated assets" tax-free from parents to their children.
How it works: The older generation (parents) become 2%
owners as "general partners" in a Family Limited
Partnership.
Over a period of time, by "gifting" limited
partnership interests, the younger generation (children) become the 98%
"limited partners."
End result: Highly appreciated assets are effectively transferred from the estate of the "parents" to the "children" tax-free. When carefully and properly implemented, it’s a wonderful / wonderful tax deferral strategy.
The IRS considers these arrangements "abusive"
when overzealous practitioners "over-claim" two commonly used
discounts in the valuation of underlying (highly appreciated) assets in
Estate Tax Valuations. The IRS comes down significantly hard, when these
arrangements are made over a "death bed." (Hours / days before
death).
The two valuations are:
(1) Lack of marketability discounting, typically 15% to 30% due to a limited market for the business or the assets.
(2) Limited minority interest discounting, typically an additional 15% to 30% due to the minority position (lack of control) in the business or underlying assets.
Combined, these two discounts can amount up to 60%.
How much is too much? NEVER-THE-LESS,
if discounting is reasonably and carefully applied, it’s a significant tax
saving devise.
The disadvantages:
(1) Gifted property does NOT receive the "stepped-up" basis treatment that bequeathed property receives. Therefore the children, who have received "gifted partnership interests" may face unexpected capital gains tax liability.
(2) General Partners are not insulated from potential lawsuits, judgments, or creditor seizures. This problem can be avoided if the General Partner is the FAMILY, LLC.™
If you have an interest in FAMILY BUSINESS SUCCESSION
PLANNING, please contact us, there are several available devises addressing
the following important issues:
Ownership. Which of the FAMILY members will become the future owners of the business? What plan or combination of plans is the most effective in consideration of asset/wealth preservation, elimination of probate, deferral of capital gains taxes, elimination of estate taxes, and reduction of earned income taxes.
Control. Which of the FAMILY members will become the future managers. Not all FAMILY members have management skills. Some FAMILY members should have voting control, while others must become silent partners.
Dispute resolution. How will FAMILY members deal with potential disputes? What mechanism is fair to controlling and non-controlling FAMILY members.
Employment. Which FAMILY members will be employed by the business?
® | Medallion Trust® | Vertex Trust®strategies | Rocco Beatrice | contact us
What's a Trust?
Estate Street Partners,
LLC
Boston, MA 02109
508-429-0011 / Fax: 508-429-3034
RBeatrice@PrivateWealth.com