What’s Left Unaddressed in 2013 – Part 2

22 Feb

In the last post I discussed how some estate planning tools continue to be beneficial to certain individuals for the reason that they were not addressed, or more appropriately not restricted nor eliminated, in the American Taxpayer Relief Act.  The first post of this series was about grantor retained annuity trusts (GRATs), which are a mechanism that allows an individual to take assets out of his or her estate and pass those assets to the desired beneficiaries, ultimately producing a tax savings.  The big positive to taxpayers was that the time period for GRATs was not restricted to a 10 year minimum, which would have produced less advantageous results for individuals seeking to utilize this estate planning strategy.  In the second installment of estate planning items left unaddressed by the Act, I discuss valuation discounts in closely held family entities.


Family Business Entities:

As you can guess from the name, family limited partnerships (FLP) and family limited liability companies (FLLC) are entities controlled by members of a family. These entities are commonly used to transfer wealth within families through older generations removing assets from their estate and transferring those assets to younger generations. A key advantage to these entities are the valuation discounts available upon the transfer of FLP or FLLC interests.

Typically, the transfer of assets is valued at the fair market value of the property.  However, valuation discounts can reduce the value of transferred assets by significant amounts.  Two such discounts are for lack of control and lack of marketability, both of which are present in family business owner interests.  The lack of control stems from a noncontrolling member’s inability to have control over the business, while the lack of marketability stems from the restraints set on the ability to transfer family business interests.

There was serious discussion that the valuation discounts given to family entities were going to be eliminated after 2012, but they remained, producing very advantageous results for family entities.  It should be noted that these estate planing techniques are not only for the wealthy, but can also be useful for small business owners as well.



This post is provided for informational purposes only and does not constitute legal advice.  It is intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results.  It is not intended to create an attorney-client relationship and is offered only for general informational and educational purposes.  You should not act or rely on any information contained in this website without first seeking the advice of an attorney.


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