The Family Limited Partnership Deskbook: Forming and Funding FLPs and Other Closely Held Business Entities, Second Edition
Contents
Table of Exhibits About the Authors Foreword Acknowledgments
CHAPTER 1 Family Limited Partnerships in Estate Planning
A. BACKGROUND AND LEGISLATIVE HISTORY B. WHY USE AN FLP—SIGNIFICANCE IN ESTATE PLANNING 1. Lifetime Goals 2. Estate Planning Goals 3. Use of Trusts 4. Use of Family Limited Partnerships C. COUNSELING CLIENTS
CHAPTER 2 Family Limited Partnership Basics
A. SIGNIFICANCE OF DISCOUNTS 1. Determination of Fair Market Value (FMV) a) How Is It Determined? b) Significance in Transfer Tax System 2. Leveraged Gifting a) Gift Tax Concerns b) Estate Tax Concerns B. VALUATIONS 1. Discounts for Fractional Interest and Lack of Control 2. Discounts for Lack of Marketability 3. Other Discounts and Premiums a) Capital Gains Discount b) Blockage and Market Absorption Discounts c) Discount for Securities Law Restrictions d) Premiums
CHAPTER 3 Substantiating Discounts and Reporting Requirements
A. GIFT TAX DISCLOSURE B. ACCURACY-RELATED PENALTIES C. BURDEN OF PROOF D. OTHER CONSIDERATIONS
CHAPTER 4 Taxation of Partnerships Basics
A. PARTNERSHIP FORMATION AND CONTRIBUTION BASICS 1. The Basic Terminology 2. I.R.C. Section 721 and Related Provisions of the Code 3. I.R.C. Section 704(c) a) Initial Contribution b) Subsequent Partnership Contribution; Admission of Additional Partner c) Distributions of Section 704(c) Property B. PASS-THROUGH TAX TREATMENT AND ALLOCATIONS 1. Income 2. Losses C. DISTRIBUTIONS 1. General Rule a) Current Distributions b) Liquidating Distributions c) Guaranteed Payments 2. Exceptions to the General Rule a) Certain Distributions Treated as Money (1) Marketable Securities (2) Liabilities b) Non–Pro Rata Distributions c) Distributions of Contributed Property (1) I.R.C. Section 704(c) (2) I.R.C. Section 737 D. LIABILITIES 1. Contributions and Distributions of Encumbered Property 2. Transfer of Partnership Interests E. OPTIONAL BASIS ADJUSTMENTS
1. Transfers of Partnership Interests 2. Disproportionate Distributions 3. Distributions to Transferee Partners F. OTHER CONSEQUENCES THAT RESULT FROM THE TRANSFER OF A PARTNERSHIP INTEREST 1. Sale or Exchange of 50% of Partnership Interests—I.R.C. Section 708(b)(1)(B) 2. Allocating Partnership Income
CHAPTER 5 Using the Basic Technique
A. THE APPROPRIATE CLIENT 1. Transferring Wealth a) Gifting b) Transferring Wealth without Transferring Control c) Distributions of Income 2. Reduce Gross Estate a) Shift Value and Future Appreciation b) Estate Taxation 3. Miscellaneous Reasons a) Asset Protection b) Estate Administration B. THE APPROPRIATE ASSETS 1. Appreciated versus Appreciating Assets 2. Income-Producing Assets 3. Subchapter K Considerations 4. Personal-Use Assets Exhibit 5-1
CHAPTER 6 Forming and Maintaining the Entity
A. FORMATION 1. Who Should Contribute? 2. Gift on Formation 3. Single-Member LLC Issues B. CONTRIBUTING ASSETS 1. Deeds and Asset Assignments 2. Valuations and Documentation C. FORMING AND MAINTAINING THE FLP 1. Where to Form—State Issues
a) Taxation b) Filings 2. Maintaining the FLP a) Valid Business Purpose and Respecting Business Form b) Asset Segregation and Commingling Issues 3. Reporting and Filings Exhibit 6-1 Exhibit 6-2 Exhibit 6-3 Exhibit 6-4 Exhibit 6-5
CHAPTER 7 Drafting the Operating Agreement or Partnership Agreement
A. OVERVIEW OF CHAPTER 14 B. DRAFTING FOR DISCOUNTS 1. Withdrawal Rights 2. Liquidation and Dissolution 3. Transferability 4. Voting Rights—Classes of Interests C. OTHER DRAFTING CONCERNS AND CONSIDERATIONS 1. Annual Exclusion and Income Distributions 2. Transfers at Death 3. Income Allocations and Capital Account Maintenance 4. Miscellaneous Exhibit 7-1(a) Exhibit 7-1(b) Exhibit 7-2(a) Exhibit 7-2(b) Exhibit 7-3 Exhibit 7-4 Exhibit 7-4(a) Exhibit 7-4(b) Exhibit 7-4(c)
CHAPTER 8 Transfers of Partnership Interests—Making the Assignment
A. HOW TO MAKE AN ASSIGNMENT
1. Documentation 2. Dollar-Based ―Defined Value‖ Clauses Upheld 3. Assignee Interest versus Partnership Interest B. WHEN TO MAKE AN ASSIGNMENT 1. Gift on Formation Issues 2. Valuing the Interest Assigned 3. Income Tax Consequences of the Transfer C. OTHER SUBCHAPTER K ISSUES 1. I.R.C. Section 704(c) 2. Mixing Bowl Provisions—I.R.C. Section 737 Exhibit 8-1(a) Exhibit 8-1(b) Exhibit 8-1(c) Exhibit 8-1(d) Exhibit 8-1(e) Exhibit 8-1(f) Exhibit 8-2(a) Exhibit 8-2(b)
CHAPTER 9 Maintaining Integrity of the Entity and What Can Go Wrong
A. IRS ATTACKS 1. Attacks as a Matter of Law 2. Applicable Case Law 3. Attacks on a Factual Basis B. MAINTAINING INTEGRITY OF THE ENTITY 1. Formation Issues 2. Operational Issues Exhibit 9-1
INDEX