Family Limited Partnership: Disadvantages
Posted on: February 1, 2017 at 7:11 am, in
Family Limited Partnerships can be abusive tax-free wealth transfers. How does the family limited partnership work and what are the disadvantages? To discount estate tax valuations of underlying assets used as a tax deferral strategy when gifting to the younger generation.
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Family limited partnerships, one such traditional limited partnership
, have been over marketed as wealth transfer devises. Family limited partnerships are red flags for the Internal Revenue Service as abusive tax-free wealth transfers. Family partnerships have been widely propagated as the devise of choice for transferring the family business and other highly appreciated assets tax-free from parents to their children.
Different programs are available to transfer ownership and the management of a family business. 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.
Did you know that general partners of family partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures? The problem is avoided if an irrevocable trust such as the Ultra Trust®
(not a revocable trust) is used as the general partner of your family limited partnership.
How does the Family Limited Partnership Work?
The older generation (i.e. parents) become owners with 2% stake in the business and thereby establish themselves as general partners in a family limited partnership. Over a period of time, by gifting limited partnership interests, the younger generation (i.e. children) end up as limited partners with a 98% stake in the business. This all sounds wonderful and an almost ideal tax deferral strategy. But is there a catch to all of this great tax-free wealth transfer and strategy?
Gifting to the Younger Generation with a Family Limited Partnership
The result is 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.
Did you know 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 deathbed especially in the hours or days before death. Please note that there’s an increasing congressional opposition to the use of family limited partnerships.
Two Discount Estate Tax Valuations of Underlying Assets in Family Partnerships are:
- Lack of marketability discounting which is typically 15% to 35% reduced estate tax valuation due to a limited market for the business or the assets, if sold.
- Limited minority interest discounting which is typically an additional 15% to 35% reduced estate tax valuation to the minority position (lack of control) in the business or underlying assets.
Combined, these two discounts can amount up to 70% or more. But how much is too much?
Disadvantages of Family Limited Partnerships:
- 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. If discounting is reasonably and carefully applied, it’s a significant tax saving devise. Keeping in mind that it’s great for the parents, not so good for the children because of the unexpected capital gains tax liability that can be imposed on the children.
- General partners are not insulated from potential lawsuits, judgments, or creditor seizures. This problem can be avoided if the general partner is the Ultra Trust. The parents as general partners are 100% in control of the assets and 100% responsible for a potential lawsuit. General partners will have no asset protection in these cases.
Family Business Succession Estate Planning:
If you have an interest in family business succession planning, there are several financially-engineered devises addressing the following important issues:
- Ownership of family business – 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 protection and wealth preservation, elimination of probate, deferral of capital gains taxes, elimination of estate taxes, and reduction of taxes on earned income or possibly eliminate income taxes.
- Control of your family business – 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?
Read more traditional limited partnerships, your financial goals, estate plannning, deferring taxes, deferring income tax, deferring capital gains tax by clicking here:
Intro Financial Estate Planning & Wealth Preservation
Posted on: February 1, 2017 at 6:24 am, in
Your Successful Financial Goals
is how the AFFLUENT remain affluent. They have embraced powerful “knowledge:”
FINANCIAL means your present and future lifestyle.
ENGINEERING means to implement a solid legal brick and mortar foundation of “control over your wealth” not ownership.
Combined, FINANCIAL ENGINEERING means to strategically and by design, avoid frivolous lawsuits, eliminate the expensive probate process, defer (postpone) your capital gains taxes, defer, reduce, possibly eliminate taxes on your income streams and finally avoid estate taxes.
YOUR LIFE’S FINANCIAL GOALS SHOULD BE:
- To become ” judgment proof ” and preserve and legally protect your wealth.
- To defer (postpone) your capital gains taxes [read our Vertex Trust]. [Federal 20-28%, + your state tax].
- To reduce, defer or possibly eliminate your income taxes and on your “other income streams” [Federal 39.6% + your state].
- To eliminate the “probate jail process.” In some states “probate jail” could take 3+ years and consume 7% to 15% of your gross estate.
- To eliminate ALL inheritance taxes [read our Medallion Trust®]. Federal + state can take up to 65% of your gross estate. Inheritance taxes when combined with probate costs, could consume up to 80% of your gross estate.
Successful accelerated financial estate planning and wealth preservation is based on your financial goal(s).
Asset by asset personal residence, bank account, investment account, business, other real estate, IRA, your pension)…What’s your financial goal(s)? 1, 2, 3, 4, 5, or combinations. (see above goals)
Where…. does the asset belong?
Domestic or international?
Use “good planning” NOT secrecy.
Rely on ” law ” NOT secrecy.
Successful financial estate planning and wealth preservation is a work in progress.
Successful Estate Planning & Wealth Preservation
Posted on: February 1, 2017 at 6:12 am, in
The Alternative, Uncompromising & Exclusive Estate Planning & Wealth Preservation for Your Chartered Blueprint to Accelerated Financial Success
SUCCESSFUL FINANCIAL ESTATE PLANNING & WEALTH PRESERVATION
is how the AFFLUENT remain affluent. They have embraced powerful “knowledge:”
- You CANNOT be sued for what you don’t have.
By avoiding frivolous lawsuits, you keep asset control so predator creditors and their clever money hungry lawyers cannot squeeze out of you.
- Deferral of taxes is postponing to your timetable.
- Non-Taxable is a “legal” exception or exemption.
- Borrowing is a “Non-Taxable” event.
- Control of your money & assets CANNOT be delegated to others.
Three Powerful Objectives to Successful Wealth Preservation:
- Never, Never, NEVER own anything in your name, jointly with your spouse, do business as a sole proprietor, or be the general partner of a partnership. That is: FINANCIAL ENGINEERING for the preservation of your wealth, superior estate planning and “legal” protection of your assets against potential frivolous lawsuits, elimination of probate and estate death taxes.
- Defer your capital gains taxes by re-engineering your transaction(s). “Deferral” means “to Postpone.” Qualifying highly appreciated assets include: Stocks, bonds, real estate, sale of your business, collectibles, art, antiques, notes at least two years old, any highly appreciated asset(s) you bought for i.e. $100 now worth $1,000.
- By re-engineering how you do business may defer, reduce, possibly eliminate taxes on your “income streams.” Qualifying “income streams” (under certain conditions) include your salary, bonus, commissions, rental income, royalties…day-trading…
- Finally: tax efficient wealth transfer to your next generation.
Who is Estate Street Partners?
Estate Street Partners is a network of licensed legal, accounting, and tax experts providing dynamic, strategic, custom engineered consulting & research to complex business transactions.
As advisors, we have developed a world-wide network of hands-on / real-world strategic provider relationships.
Our operating strategy is to build and leverage our collective knowledge and resources to protect your assets from potential frivolous lawsuits, design and implement strategies to preserve your wealth by recapturing lost tax dollars, defer capital gains taxes, and reduce current taxes on your income streams; finally, eliminate probate and estate taxes.
We have asked our best clients what they want:
- Assistance in making smart decisions about their money
- Confidentiality about their transactions
- Peace of mind
Fresh ideas you don’t currently have;
creating liquidity to your problem of wealth.
Limited Liability Company (LLC) Advantages & Benefits
Posted on: January 22, 2017 at 5:59 am, in
Some benefits of limited liability company are asset protection, real estate investments to form REIT, estate tax planning, assist with eliminating probate, charitable gift giving, 1040 tax flow through benefits, multistate operations and professional practice operations.
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There are many advantages to the limited liability company (LLC) including the financial and tax advantages. Herein we discuss the other specialized uses and benefits to you for possibly implementing the limited liability company in your estate planning and business strategies.
The LLC in Asset Protection
First-time business owners were first unincorporated proprietorships. As they began to realize the possible loss of their personal assets or as they started to get in trouble only then did they consider other types of ownerships. The limited liability company is the most efficient way to do business. No assets or business should ever be in their personal name.
In other words, you should “own nothing yet control everything-else.” Personal creditors cannot step in your shoes to take control of your LLC and your creditor is precluded by law and with unwanted tax consequences. Under the LLC, members cannot be held personally liable.
Another good asset protection technique to shield your personal and other valuable assets is allowing the limited liability company own a “blanket mortgage” on all your assets – that is, in a sense, you owe money to your LLC. Alternatively, don’t put all you eggs in one basket and have multiple limited liability companies for multiple types of risks or multiple layers of legal entities, depending on your risk.
The Limited Liability Company in Real Estate Investments
LLC’s flexibility allow unlimited number of members. LLCs may register their shares with the Securities and Exchange Commission as publicly traded securities. In other words, Real Estate Investment Trusts (REITS) under the LLC umbrella are at far less cost and with less administrative complications.
The United States is the “offshore” for foreign entrepreneurs. Foreign investors consider the United States as their “offshore” tax-free, tax-haven jurisdiction due to favorite treatment of their investments and tax-free status afforded to them. For example, there are no capital gains taxes on securities purchased in the United States and sold by foreign investors.
The LLC in Estate Tax Planning and Eliminating Probate
The LLC is an ideal way to transfer wealth amongst family members. The older generation (i.e. parents or grand parents) can retain control of the assets or business by eliminating third-party interests and restricting membership while eliminating estate and gift tax consequences. The LLC is a much more practical device for this purpose with no mandatory distributions to the younger generation (children).
Creditor Transactional Benefits
Limited liability companies have a distinct advantage when it comes to borrowing money from traditional institutions such as a bank or doing business.
Charitable Gifting with the Limited Liability Company
Charitable giving and fund-raising is better facilitated through an LLC. Member gifting is passed through to their individual income tax returns on the federal form 1040.
1040 Flow Through Tax Benefits
You can avoid paying both corporate taxes and personal taxes on your profits and expenses with the LLC otherwise known as double taxation. This can be a tax advantage in many cases as the business profits, losses and expenses flow through to your 1040 federal form as a personal tax.
Profit Distribtuions are Completely Flexible
The profit distributions can vary with any percentage profit sharing under the LLC umbrella unlike a common partnership at 50/50 split.
MultiState Operations and the Professional Practice Protection with the LLC
Operations in multiple states and professional practices are enhanced by the use of an LLC. LLCs have long been recognized as traditional legal business entities. A trust
is not afforded such luxury because no one knows what’s the nature of its business purpose. Essentially, a trust is a private business contract between the grantor, the trustee, and the beneficiaries.
From a business perspective you should consider the LLC in estate planning and in your business strategy. The limited liability company has many advantages that aggregate features of a corporation and a partnership. In America we have the option to set up a business as a sole-proprietorship (one I strongly do not recommend), partnership and corporation. In addition, it’s only in the United States where we have the added privilege of benefiting from the formation of a limited liability company.