A method to reduce estate taxes, which had been limited by the IRS in recent years, is now safe. This method utilizes discounting of transfers of interests in closely held entities (Family Limited Partnerships, Limited Liability Companies, family corporations) to family members. Such “leveraged gifting” has been an extremely important, effective and common method used to eliminate estate taxes.
Partners in Family Limited Partnerships (FLPs) should consider gifting limited partnership interests in order to decrease the value of their estate for tax purposes. As long as they retain their General Partner (GP) interests, they will continue to control all assets within their partnership. Yes, you can escape the estate tax and still control the assets.
- You can lower the value of your taxable estate, and pass up to $5,490,000 ($10,980,000 for a married couple) to your heirs, tax free. In 2018, the exclusions go up: $5,600,000 for individuals and $11,200,000 for married couples.
- If you own an FLP, you can gift Limited Partnership (LP) interests to your heirs, and take advantage of discounting, to get even more out of your estate, tax-free. As much as $22,000,000 worth of FLP assets can be conveyed to your heirs and escape the estate tax.
- You can keep your General Partner (GP) interests and still control the FLP and its assets, even if you gift all of the Limited Partnership (LP) interests.
Also, don’t forget about the annual gift exclusion, which allows you to gift up to $14,000 ($28,000 for a married couple) by the end of 2017 to as many people as you choose. In 2018, this amount will increase to $15,000 per person, $30,000 per married couple.
We can advise you as to appropriate FLP discounts, prepare memoranda of gift for you, as well as the partnership valuation and gift valuation calculation letters (necessary for the IRS). A recent tax court case has made it imperative that the documents transferring the LP interests be worded very carefully. These documents should be prepared by qualified tax counsel. Please contact us with any questions regarding your year-end tax planning.