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 as abusive tax-free WEALTH TRANSFERS.  The Family Limited Partnership is nothing more than the traditional partnership for which "only family members" can be partners, as either General Partners or Limited Partners.

General Partners of Family Partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures.

The problem is avoided if the FAMILY, LLC™ or the ULTRA TRUST® 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 transferred from the estate of the "parents" to the "children" presumably tax-free. When carefully and properly implemented the Family Limited Partnership is a useful tool.  But there are better ways to achieve a significantly more efficient transfer of wealth. 

 The IRS considers these Family Limited Partnership 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).  (Please note that there's an increasing congressional opposition to the use of  FLP's.)

The two discount valuations are:

(1) Lack of marketability discounting, typically 15% to 35% due to a limited market for the business or the assets, if sold.

(2) Limited minority interest discounting, typically an additional 15% to 35% due to the minority position (lack of control) in the business or underlying assets.

Combined, these two discounts can amount up to 70% or more.

How much is too much? 

The disadvantages of Family Limited Partnerships:

(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.  Great for the parents, not so good for the children.

(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.™  The parents as General Partners are 100% in control of the assets and 100% responsible for a potential lawsuit.

 If you have an interest in FAMILY BUSINESS SUCCESSION PLANNING, please contact us, there are several financially engineered devises addressing the following important issues:

Ownership.  Which of the FAMILY members will become the future owners of the business? What method or combination of methods 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 taxes on earned income.

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?