60.1K

Verified Solution

Link Copied!

D has three assets which make up the vast majority of Ds estate: (i) Ds house (real estate) valued at $18,000,000, with an adjusted basis of $1,000,000, (ii) an operating business valued at $72,000,000, and (iii) a bank account with $10,000,000 cash. D has already used the majority of Ds unified credit. D would like to transfer these assets to the next generation at as low of a transfer tax cost as possible. D trusts the next generation (his four children) and is not opposed to ceding financial control to them, however, as D has superior working knowledge of the business, D would like to maintain some form of operational control at least until Ds children are ready to take over the business, and of course D needs a place to live. D has been told by one of Ds financial advisors that if he transfers some or all of his assets to a Partnership and then transfers/gifts non-voting (limited) partnership interests to Ds children, D will receive a transfer tax discount for lack of marketability (difficult to sell) and lack of control (if recipient cant vote their shares or is in a minority position). D has also been told that there is a possibility of reducing transfer taxes by transferring just a remainder interest to a trust a retaining an income interest for life.

Questions:

1. Ds advisor has suggested the following: That D transfer some assets to partnership P (P) in exchange for a 98% limited partnership interest (non-voting) and additionally transfer cash to P in exchange for a general partnership interest (voting and control rights) which could or could not be 100% of the General Partnership. (The General Partner, by majority vote, has the power to make/control partnership distributions, business decisions and operations). D would then transfer/gift the limited partnership interests to Ds children. Ds advisor believes that D will receive a gift tax discount for the transfers of the limited partnership interests to Ds children, and thus remove substantial value from Ds estate (the limited partnership interest gifted to children).
   1. Below are separate additional suggested actions that D can take with regard to the trust. For each additional suggestion state whether the suggestion will help or not help D achieve the goal of reducing Ds transfer tax, a brief statement why, and cite at least one primary authority to support your conclusion:
      1. Suggestion 1: Include a clause in the partnership agreement which states that D is entitled to live in the house and receive minimum distributions for Ds support from P (e. not in the partnerships (General Partners) discretion

Answer & Explanation Solved by verified expert

See Answer