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

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Program Materials

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.

Description

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.

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Outline

  1. Understanding IRC 2701 provisions
  2. IRC Chapter 14 valuation issues
  3. “Reverse” preferred partnership
  4. Advantages of the freeze partnership over other techniques
  5. Structuring the freeze to maximize basis step-up
  6. Drafting and structuring partnership transfer
  7. Use of preferred partnerships with various trusts
  8. Sample language and illustrations

Benefits

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

Faculty

Jacobson, David
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...  |  Read More

Eric Fischer, Esq.
Eric Fischer, Esq.

Withers Bergman

Mr. Fischer's practice focuses on domestic and international tax, trust and estate planning matters, with a...  |  Read More

Joshua Becker, Esq.
Joshua Becker, Esq.

Withers Bergman

Mr. Becker's practice focuses on domestic and international income tax planning and controversy matters. He...  |  Read More

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