Estate Planning with FLPs and LLCs: What's Hot and What's Not Seminar Materials

Publication Date: July 2013
Available Formats: Searchable PDF via immediate download, CD-ROM, or USB Flash Drive
Pages: 124, includes sample forms

Information

Topics Covered:

  • Larger Unified Credit Raises Questions about Valuation Discounts
  • Nondiscountable Indirect Gift on Formation vs. Discountable Gift of Entity Interests – The Devil is in the Details
  • Section 2036(a) – The Most Common Problem for Family Limited Partnerships and LLCs
  • Marital Deduction Complications and Family Limited Partnership or LLCs
  • Gift Tax Annual Exclusion for Gifts of Membership and Partnership Interests
  • Post Mortem Completion of a Family Partnership
  • Pierre and the Single-Member LLC –the Check-the-Box Regs DO NOT Apply to Gift Tax Valuation for Gifts of Interests
  • Sections 2704(b) and Applicable Restrictions. Treasury Would Expand Scope of Section 2704(b) to Ignore More Restrictions and to Reduce Partnership and LLC Valuation Discounts
  • Sample Forms

This comprehensive, stand-alone publication is direct from a July 2013 seminar.

The family limited partnership (FLP) and limited liability company (LLC) remain among the most appealing estate planning tools. These entities can provide both tax and nontax benefits when properly incorporated into the estate plan including facilitating generational gifts and creating potential discounts for transfer tax purposes.

These materials cover the key areas where IRS scrutiny is the most intense and discuss recent cases and administrative and legislative developments that affect estate planning uses of FLPs and LLCs.

124 pages with forms.


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Table of Contents

Table of Contents

I. Larger Unified Credit Raises Questions about Valuation Discounts
    A. Background
    B. The Dark Side of Discounting
    C. Planning
        1. Evaluate
        2. Wait
        3. Discuss and Document

II. Nondiscountable Indirect Gift on Formation vs. Discountable Gift of Entity Interests – The Devil is in the Details
    A. Background
        1. Old Approach
        2. The Introduction of Dueling Dicta
    B. Recent Developments
        1. Holman – Step Transaction Applied, and Hints About How Much Time Makes Steps Independent
        2. Gross – Holman Light
        3. Linton – Ninth Circuit Rejects Step Transaction for Formation of a Family Limited Liability Company – Sort Of
        4. And Also Consider
    C. Planning
        1. Time – How Much is Enough?
        2. A Suggested Approach
    
III. Section 2036(a) – The Most Common Problem for Family Limited Partnerships and LLCs
    A. How Section 2036(a) Works
        1. Transfer
        2. Bona Fide Sale Exception
        3. Retained Interest or Power
        4. How Many Issues to Face
    B. Bona Fide Sale Exception
        1. The Two-Part Bongard Rule
    C. Retained Beneficial Enjoyment (Section 2036(a)(1))
        1. Ignoring the Formalities
        2. Specific Failures
        3. Problems Travel in Packs
        4. Corrections Are Often Not That Helpful
        5. Planning
    D. Retained Control Over Beneficial Enjoyment (Section 2036(a)(2))
        1. The Opening – A Surprisingly Quiet Group of Rulings
        2. Strangi – The Very Long Tale of Section 2036(a)
        3. Kimbell – The Fifth Circuit Peeks at Section 2036(a)(2)
        4. Mirowski. A Heart-Rending (Defibrillating?) Tale
        5. Turner – The Taxpayer Loses a Clean Case Under Section 2036(a)(2)
        6. Planning for Section 2036(a)(2)

IV. Marital Deduction Complications and Family Limited Partnership or LLCs
    A. The Mismatching Problem
    B. The Formula Gift Problem
    C. Planning
        1. Example
        2. Chances of Success
        3. What to Do

V. Gift Tax Annual Exclusion for Gifts of Membership and Partnership Interests
    A. Introduction
    B. Conflicting Private Rulings
        1. TAM 9751003
        2. PLR 199944003
    C. The Cases
        1. Strike One – Hackl
        2. Strike Two – The Price is Not Right
        3. Strike Three – Fisher (and Another Court is Heard From)
        4. And a Hit! – Estate of Wimmer v. Comm’r, T.C. Memo. 2012-157 (June 4, 2012)
    D. Planning for the Annual Exclusion
        1. Ignore the Annual Exclusion
        2. Rely on Wimmer
        3. Make Partnership and LLC Interests Income-Productive
        4. Authorize Withdrawal and Liquidation of Transferred Interests
        5. A Partnership or Membership Agreement Crummey Power
        6. Temporary “Put” Right

VI. Post Mortem Completion of a Family Partnership
    A. Introduction
    B. Church
        1. Facts
        2. Service Seeks Estate Tax
        3. District Court Holds for Taxpayer
        4. Fifth Circuit Affirms
    C. Keller – Church Redux
        1. Facts
        2. District Court Upholds Discounts
        3. Fifth Circuit Affirms
    D. Significance of Church and Keller

VII. Pierre and the Single-Member LLC –the Check-the-Box Regs DO NOT Apply to Gift Tax Valuation for Gifts of Interests
    A. Facts
        1. Taxpayer Creates a Single-Member New York LLC
        2. Funding the LLC
        3. 30 Percent Discount Claimed
        4. IRS Disallows Discount Because of Check-the-Box Reg
    B. Tax Court Majority Carves Out a Gift Tax Exception from Check-the-Box Regs.
        1. State Laws Determine Property Rights, Tax Laws Define Treatment of Those Rights.
        2. Scope of “For Federal Tax Purposes” in the Check-the-Box Regs.
        3. Check-the-Box Regs Applied Beyond Income Taxes
    C. Concurring Opinion
    D. Dissents
        1. Halpern Dissent
        2. Kroupa Dissent
    E. Comments
        1. The Service vs. Conventional Gift Tax Rules
        2. The Service Applies Income Tax Concepts
        3. In Support of Judge Halpern’s Dissent
    F. Planning Considerations
        1. Create Multi-Member LLC Before Making Gifts
        2. Using Grantor Trusts
    G. Addendum

VIII. Sections 2704(b) and Applicable Restrictions. Treasury Would Expand Scope of Section 2704(b) to Ignore More Restrictions and to Reduce Partnership and LLC Valuation Discounts
    A. Four Treasury Proposals – Then Silence
        1. Disregarded Restrictions
        2. Ignoring Certain Nonfamily Interests
        3. Safe Harbors
        4. Marital and Charitable Deductions
        5. Effective Date
        6. And for Fiscal Year 2014 – Silence
    B. Comments
        1. Section 2704(b) Eroded by Courts and Legislatures
        2. Reliance on Regulations Makes Proposal Tricky to Discern
        3. Treasury Might Act Without Congress

IX. Sample Forms
        A. Family Limited Partnership/Limited Liability Company Planning, Drafting and Administration Checklist
        B. Family Limited Partnership Agreement and Certificate -- Corporate General Partner Limits Lapse of Liquidation
        Rights -- Donees Are Limited Partners -- Buy-Sell Provisions -- Formed Under the (2001) Revised Uniform
        Limited Partnership Act--Gifts Qualify for Annual Exclusion Because of Withdrawal Power – No Special
        Allocations of Income, Gain, or Tax Attributes
        C. Deed of Gift of Limited Partnership Interest, Including "Put" Right to Qualify Gift for the Annual Exclusion

Authors

Howard M. Zaritsky

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