Structuring Preferred Partnership Freezes in Estate Planning: Chapter 14 Valuation Rules, Transferring Assets, Basis

CPE credit is not offered on this program

Recording of a 90-minute CLE video webinar with Q&A

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Conducted on Tuesday, June 22, 2021

Recorded event now available

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Course Materials

This CLE course will provide estate planners, advisers, and tax counsel with a comprehensive exploration into the planning and structuring challenges and tax benefits of "freeze partnerships" as a tool for inter-generational wealth transfer. I will discuss how to determine when freeze partnerships are the optimal vehicle for preserving basis, how the partnership freeze differs from other trust-based freeze techniques (specifically Grantor Retained Annuity Trusts and Sales to Intentionally Defective Grantor Trusts), and how to navigate the complex rules of Internal Revenue Code Chapter 14.

Description

A preferred freeze partnership can be a useful and flexible estate planning tool, especially for highly leveraged, low basis real estate. In its most basic form, a properly structured preferred partnership freezes a class of partnership interest by limiting it to a fixed rate of return, thus concentrating the accumulation of growth in the partnership value to the non-frozen interests. Advisers must understand the special valuation rules of Chapter 14 of the IRC to avoid potentially costly tax consequences. Such a structure may also achieve significant income tax savings from a step-up in basis for the retained frozen interest at death.

Structuring a basic freeze partnership involves a taxpayer--usually a parent--contributing assets to a partnership or LLC in exchange for partnership interests that pay a fixed, preferred return. The remaining partners receive common growth interests. In structuring the partnership, advisers must carefully navigate the technical rules of IRC Section 2701-2704 or the transfer may result in a deemed taxable gift.

Freeze partnerships can also be structured in other ways, including the "reverse freeze," and in combination with various other planning vehicles to achieve tax and non-tax objectives, including trusts such as QTIP trusts and CLATs, as part of a comprehensive plan to pass down wealth to future beneficiaries.

Listen as our experienced speaker provides a thorough guide to the benefits, risks, and structuring techniques of preferred freeze partnerships in estate planning.

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Outline

  1. Structures, mechanics, and operations of freeze partnerships
  2. Gift tax issues to avoid at the formation
  3. Valuation requirements in IRC 2701 - 2704
  4. Reverse preferred partnerships
  5. Recent developments

Benefits

The panelist will review these and other key issues:

  • Structures, mechanics, and operations of freeze partnerships
  • Differences in various freeze techniques
  • Why clients prefer partnership freezes over other trust freeze techniques
  • Gift tax issues to avoid at formation
  • How not to run afoul of the valuation requirements in IRC 2701 - 2704
  • Reverse preferred partnerships
  • Recent developments

Faculty

Macklin, Lawrence
Lawrence J. (Larry) Macklin, AEP®
Managing Director & Wealth Strategies Advisor
Bank of America Private Bank

Mr. Macklin coordinates the development and delivery of innovative strategies and solutions for high net worth...  |  Read More

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