The Family Limited Partnership Deskbook: Forming and Funding FLPs and Other Closely Held Business Entities / Edition 2

The Family Limited Partnership Deskbook: Forming and Funding FLPs and Other Closely Held Business Entities / Edition 2

by David T. Lewis, Andrea C. Chomakos
     
 

ISBN-10: 159031817X

ISBN-13: 9781590318171

Pub. Date: 03/25/2008

Publisher: American Bar Association

Forming and funding a family limited partnership or limited liability company is both increasingly common and complicated. This current, comprehensive reference provides in-depth analysis of all facets of using these planning vehicles. It begins with detailed guidance on the basic principles of drafting, forming, funding, and valuing an FLP or LLC, but also covers

Overview

Forming and funding a family limited partnership or limited liability company is both increasingly common and complicated. This current, comprehensive reference provides in-depth analysis of all facets of using these planning vehicles. It begins with detailed guidance on the basic principles of drafting, forming, funding, and valuing an FLP or LLC, but also covers advanced income tax concerns. Added tools include examples and extensive sample forms on CD-ROM.

Product Details

ISBN-13:
9781590318171
Publisher:
American Bar Association
Publication date:
03/25/2008
Series:
Family Limited Partnership Deskbook: Forming and Funding Flps and Other Series
Edition description:
2nd Edition
Pages:
328
Product dimensions:
7.18(w) x 10.11(h) x 0.72(d)

Table of Contents

Table of Exhibits     ix
About the Authors     xi
Foreword     xiii
Acknowledgments     xv
Family Limited Partnerships in Estate Planning     1
Background and Legislative History     1
Why Use an FLP-Significance in Estate Planning     3
Lifetime Goals     3
Estate Planning Goals     4
Use of Trusts     5
Use of Family Limited Partnerships     6
Counseling Clients     6
Notes     8
Family Limited Partnership Basics     9
Significance of Discounts     9
Determination of Fair Market Value (FMV)     9
How Is It Determined?     9
Significance in Transfer Tax System     10
Leveraged Gifting     11
Gift Tax Concerns     11
Estate Tax Concerns     12
Valuations     14
Discounts for Fractional Interest and Lack of Control     14
Discounts for Lack of Marketability     18
Other Discounts and Premiums     20
Capital Gains Discount     20
Blockage and Market Absorption Discounts     22
Discount for Securities Law Restrictions     23
Premiums     23
Notes     25
Substantiating Discounts and Reporting Requirements     29
Gift Tax Disclosure     29
Accuracy-Related Penalties     32
Burden of Proof     33
Other Considerations     34
Notes     36
Taxation of Partnerships Basics     37
Partnership Formation and Contribution Basics     37
The Basic Terminology     37
I.R.C. Section 721 and Related Provisions of the Code     40
I.R.C. Section 704(c)     41
Initial Contribution     41
Subsequent Partnership Contribution/Admission of Additional Partner     43
Distributions of Section 704(c) Property     45
Pass-Through Tax Treatment and Allocations     46
Income     47
Losses     48
Distributions     51
General Rule     52
Current Distributions     53
Liquidating Distributions     53
Guaranteed Payments     54
Exceptions to the General Rule     55
Certain Distributions Treated as Money     55
Marketable Securities     55
Liabilities     56
Non-Pro Rata Distributions     57
Distributions of Contributed Property     58
I.R.C. Section 704(c)     58
I.R.C. Section 737     60
Liabilities     61
Contributions and Distributions of Encumbered Property     62
Transfer of Partnership Interests     65
Optional Basis Adjustments     65
Transfers of Partnership Interests     65
Disproportionate Distributions     70
Distributions to Transferee Partners     71
Other Consequences that Result from the Transfer of a Partnership Interest     73
Sale or Exchange of 50% of Partnership Interests-I.R.C. Section 708(b)(1)(B)     73
Allocating Partnership Income     75
Notes     76
Using the Basic Technique     79
The Appropriate Client     79
Transferring Wealth     80
Gifting     80
Transferring Wealth without Transferring Control     84
Distributions of Income     88
Reduce Gross Estate     90
Shift Value and Future Appreciation     90
Estate Taxation     94
Miscellaneous Reasons     97
Asset Protection     97
Estate Administration      99
The Appropriate Assets     100
Appreciated versus Appreciating Assets     100
Income-Producing Assets     103
Subchapter K Considerations     105
Personal-Use Assets     105
Notes     106
Exhibit 5-1     108
Forming and Maintaining the Entity     111
Formation     111
Who Should Contribute?     111
Gift on Formation     113
Single-Member LLC Issues     120
Contributing Assets     121
Deeds and Asset Assignments     121
Valuations and Documentation     123
Forming and Maintaining the FLP     126
Where to Form-State Issues     126
Taxation     126
Filings     127
Maintaining the FLP     127
Valid Business Purpose and Respecting Business Form     127
Asset Segregation and Commingling Issues     129
Reporting and Filings     130
Notes     131
Exhibit 6-1     133
Exhibit 6-2     134
Exhibit 6-3     135
Exhibit 6-4     137
Exhibit 6-5     139
Drafting the Operating Agreement or Partnership Agreement     141
Overview of Chapter 14     142
Drafting for Discounts     144
Withdrawal Rights     144
Liquidation and Dissolution     149
Transferability     151
Voting Rights-Classes of Interests     155
Other Drafting Concerns and Considerations     156
Annual Exclusion and Income Distributions     156
Transfers at Death     158
Income Allocations and Capital Account Maintenance     161
Miscellaneous     162
Notes     162
Exhibit 7-1(a)     165
Exhibit 7-1(b)     179
Exhibit 7-2(a)     193
Exhibit 7-2(b)     202
Exhibit 7-3     221
Exhibit 7-4     235
Exhibit 7-4(a)     251
Exhibit 7-4(b)     254
Exhibit 7-4(c)     256
Transfers of Partnership Interests-Making the Assignment     257
How to Make an Assignment     257
Documentation     257
Dollar-Based "Defined Value" Clauses Upheld     259
Assignee Interest versus Partnership Interest     260
When to Make an Assignment     264
Gift on Formation Issues      264
Valuing the Interest Assigned     267
Income Tax Consequences of the Transfer     269
Other Subchapter K Issues     275
I.R.C. Section 704(c)     275
Mixing Bowl Provisions-I.R.C. Section 737     278
Notes     280
Exhibit 8-1(a)     282
Exhibit 8-1(b)     283
Exhibit 8-1(c)     284
Exhibit 8-1(d)     285
Exhibit 8-1(e)     286
Exhibit 8-1(f)     288
Exhibit 8-2(a)     290
Exhibit 8-2(b)     293
Maintaining Integrity of the Entity and What Can Go Wrong     297
IRS Attacks     297
Attacks as a Matter of Law     297
Applicable Case Law     301
Attacks on a Factual Basis     304
Maintaining Integrity of the Entity     314
Formation Issues     315
Operational Issues     316
Notes     318
Exhibit 9-1     319
Index     321

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