Fairfax, VA (Law Firm Newswire) August 14, 2014 – For many years, wealthy families have used family-limited partnerships and limited liability companies to help leave family-owned businesses to their heirs in a way that could lower their gift or estate taxes.
Recently, they have also been used to leave portfolios of publicly traded securities to their heirs at a discount. However, according to estate attorneys, the Internal Revenue Service (IRS) is planning to discontinue the use of such a discount.
Generally, a married couple would establish a family-limited partnership to own securities or a business that they believe will rise in value. The couple are general partners and present to their children gifts of limited partner interests. Although the couple keeps control of the assets, the fact that the assets are now gifts means that they are no longer part of the couple’s estate.
The reason that this strategy is so attractive is that following an appraisal of the assets, the value of the interests is discounted from that of the underlying assets. The result is a reduced tax bill. The reason for the lower value of the limited partner interests is that the limited partners do not have control over the assets, and the limited partner assets are not as marketable as the underlying assets.
Under the rules of the IRS, the partnership must serve a legitimate business interest, and according to attorneys, the tax code contains language that supports discounts where there is a lack of control and marketability. In addition, the tax code states that the Treasury Department can place restrictions on asset discounts. Due to comments that were recently made at industry meetings, attorneys believe that the department will recommend that such discounts are greatly limited or even prevented.
“The possible limit or end to discounts on limited partner interests will lead individuals and families to find other effective ways to reduce their estate tax,” estate planning attorney Lisa McDevitt said. “A meeting with an estate planning attorney will likely result in creative ways to lower one’s estate tax bill.”
To learn more about the implications of this potential new regulation, consult an experienced estate planning attorney.
Lisa Lane McDevitt
2155 Bonaventure Drive
Vienna, VA 22181