Structuring Preferred Partnership Freezes in Estate Planning: Navigating IRC Chapter 14 Valuation Rules
Recording of a 90-minute CLE/CPE webinar with Q&A
Conducted on Thursday, March 30, 2017
Recorded event now available
This CLE/CPE webinar 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. The panel will discuss how to determine when freeze partnerships are the optimal vehicle for preserving basis, how to draft the partnership agreement and operating documents to ensure optimal tax treatment, and how to navigate the complex rules of Internal Revenue Code Chapter 14.
A preferred freeze partnership is a sometimes overlooked but highly useful and flexible estate planning tool. 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 thoroughly understand the special valuation rules of Chapter 14 of the IRC to avoid potentially costly tax consequences, though the basic freeze partnership is otherwise relatively straightforward.
Structuring a basic freeze partnerships involves a taxpayer—usually a parent—contributing assets to a partnership or LLC, in exchange for partnership interests that pay a fixed, preferred return, with the remaining partners receiving common growth interests. In structuring the partnership, advisers must be careful to properly navigate the technical rules of IRC Section 2701, 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 various tax and non-tax objectives, including in combination with trusts such as QTIP trusts, CLATs and foreign nongrantor trusts, as part of a comprehensive plan to pass down wealth to future beneficiaries.
Listen as our experienced panel provides a thorough guide to the benefits, risks and structuring techniques of preferred freeze partnerships in estate planning.
- Understanding IRC 2701 provisions
- IRC Chapter 14 valuation issues
- “Reverse” preferred partnership
- Advantages of the freeze partnership over other techniques
- Structuring the freeze to maximize basis step-up
- Drafting and structuring partnership transfer
- Use of preferred partnerships with various trusts
- Sample language and illustrations
The panel will review these and other key issues:
- Common structures of preferred partnerships
- Freeze techniques and structures
- Gift tax issues to avoid at formation
- How not to run afoul of the valuation requirements in IRC 2710 and Rev. Rul. 83-120
- Avoiding gain at formation resulting from contribution of assets into the preferred partnership
- Utilizing preferred partnerships with trusts (GRATs, CLATs, QTIPs)
- Reverse preferred partnerships
After completing this course, you will be able to:
- Recognize a properly structured preferred partnership to “freeze” assets to a specified rate of return in an estate plan
- Determine how to avoid gift tax consequences by conforming transfers to the valuation rules of IRC 2701
- Identify other preferred partnership structures, such as reverse freezes
- Indicate options to use a preferred partnership with trusts such as QTIPs, CRATs, CLATs
David C. Jacobson, Counsel
Meltzer Lippe Goldstein & Breitstone,
Mr. Jacobson's practice encompasses all aspects of estate planning and has considerable expertise in minimizing the impact of transfer taxes upon the death of senior family members. He specializes in the structuring and implementation of sophisticated estate plans for both U.S. residents and non-residents. He also counsels individuals on sophisticated charitable giving techniques. His tax-exempt organizations practice includes the representation of public charities and private foundations, from formation through dissolution, monitoring compliance with state and federal regulations, and advising on administrative matters with particular emphasis on grant-making activities. He also advises on all aspects of complex estate and trust administration.
Eric Fischer, Esq.
New Haven, Conn.
Mr. Fischer's practice focuses on domestic and international tax, trust and estate planning matters, with a particular emphasis on developing and implementing integrated planning strategies to optimize income, gift, estate and generation-skipping transfer tax efficiency. In addition, he regularly advises donors and philanthropists on planned giving and advises private foundations, public charities and other charitable organizations on formation, qualification, governance, tax and regulatory matters. He co-authored, "Mark-to-Market Freezes – Freeze Planning in an Estate Tax-Free Environment," LISI Estate Planning Newsletter #2480, November 2016.
Joshua Becker, Esq.
New Haven, Conn.
Mr. Becker's practice focuses on domestic and international income tax planning and controversy matters. He has significant experience organizing acquisitions, divestitures, and capital structures for investment funds/partnerships.He regularly represents clients in U.S. federal, state and local controversies. He has considerable experience in counseling individuals in relation to the U.S. government's focus on undeclared foreign accounts.
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