Wealth Preservation, Trusts and Estates

Family Limited Partnerships

A family limited partnership can clearly be a great estate and business-planning tool but if it is drafted or implemented incorrectly it could cost you money and headaches.  Family Limited Partnerships allow families to own and operate a business or series of investments as part of an executor estate plan to protect both parents and children. In addition, it offers the owners of real estate and closely held business a powerful tool for protecting whole businesses from dissolutions, excess taxes, and claims in divorce or lawsuits.

2011 Pennsylvania Estate Planning News:

In the Estate of E.V. Jorgenson the decedent (the person who just passed away) transferred substantial assets to two family limited partnerships and claimed that the retained powers and interests were minimal. The IRS assessed an estate tax deficiency and Tax court found that the decedent had retained the economic benefits and control of such property and that the transfers did not involve a bona fide sale for full consideration. Estate of E.V. Jorgensen, 2011-1 USTC

Why did the taxpayer lose?

Because she had written checks on partnership accounts to pay some personal expenses and make some family gifts.

What does that mean?

Because she maintained too much control of these assets and used them for personal purposes  the value of the family partnership assets were taxed in her estate.

The estate tried to argue that the amounts involved were so small that she really did not have control of the assets but the court did not agree and believed she had access to the funds.

To find out more about tax planning options that could offer significant family tax relief click here to read $ 5 Million Gift Tax Exemption Makes Gifting of Small Business Easier.

What does this mean for you and or your family limited partnership (FLP)?

Transfers of marketable securities, cash or other assets to family partnerships need to have a significant non tax purpose or the court, as it did here, will not consider them a bona fide sale for adequate and full consideration and they will remain in your estate. You and your attorney need to be aware of the heightened scrutiny involved in transferring this type of asset into Family Limited Partnerships FLP’s and its tax and other consequences. The FLP should have a bonafide business purpose and retained control should be minimal.  Using such assets to pay personal expenses will likely cause the technique to fail.

Here are a few questions to think about in considering creating an FLP or transferring or funding your FLP:

• If you were considering funding the FLP with residential or vacation real estate do you want to continue to be able to use that real estate? If so this is not the right tool.  Think instead about a qualified personal residence trust or an outright gift since property values are at historic lows.

• Do you instead need a qualified personal residence trust to implement your above desires?

• What powers or sources of income can be retained without including the FLP in your estate?

• Should you consider a GRAT – Grantor Retained Annuity Trust where some of the assets can be returned to you for your personal use?

If you are not sure of these answers or want to find out more about family limited partnerships contact a wealth preservation attorney to discuss what might work best for you and your unique situation.

Family Limited Partnerships can be a useful tool if they are created and implemented correctly. Figure out what you want to do and then think about the questions above and talk to your attorney or seek an attorney who specializes in wealth preservation to give you all the options available and what possible consequences each of those options may pose.

David M. Frees III, JD For more information about these techniques, call:
610-933-8069  or email dfrees@utbf.com

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Ross along with a small pro- agriculture group of legislatures wants to eliminate the federal estate tax. In the past year there has been a surge of enthusiasm for the repeal of the federal estate tax as congress tried to figure out what do for 2011 and 2012.

This past  December  congress approved legislation that provided $5 million per person exemption from the estate tax and set the top tax rate at 35% for 2011 and 2012. Previously the highest exemption was $3.5 million.

Ross says “…it is unfair and punishes those Americans who work hard over  their lives.”

The federal estate tax may affect farm families and small business owners and a growing number of people feel like United States Representative Mike Ross that it is just plain unfair to be taxed twice.

Read the entire brief article Ross Wants To Bury ‘Death Tax’ For Good by clicking here

The federal estate tax may be in place for 2011 and 2012 but after that it is up to us to decide its future both the costs and benefits of having the tax or eliminating it.

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Want to know about an interesting new Federal Estate Tax bill that might get traction in Congress and how you can track it on line? Read on.

A new federal estate tax bill was introduced in the House Ways and Means Committee on October 22, 2009. This bill, known as HR 3905, is called the Estate Tax Relief Act of 2009. While the fate of the federal estate tax is up in the air, this bill might actually stand a chance of getting out of committee as a compromise bill before the end of the year.

It is different than some of the other House and Senate bills. It would slightly raise the exempt amount for next year but will provide for increases thereafter in the exempt estate and also provides for phased reductions in the rate of the tax.

Unlike some bills, it does not address the idea of a husband or wife getting a carry-over also knownas portability of the first spouses exemption.

A review of the bill’s specifics:

The bill will repeal the lapse of the Federal Estate Tax as of January 1, 2010.

It would establish a $3,650,000 exemption equivalent in 2010 (more than the current $3.5 million).

The bill then gradually increases the federal exemption equivalent to $5,000,000 by 2019 and would adjust for inflation thereafter.

This bill also contains reductions in the top estate tax rates over time with continued decreases to 35% by the 2019.

Bottom line? This bill appears to address some of the concerns of both parties and may be a politically viable compromise. If passed and then passed in a similar form by the Senate, it would still require many families to do careful estate tax planning before the death of the first spouse to avoid the tax.

We will continue to keep you posted. And, you can read the bill and track its progress here. Federal Estate Tax News on HB 3905

David M. Frees III has law offices in Malvern, Phoenixville and West Chester
Pennsylvania. These offices serve all of Chester and Montgomery County, Lancaster Berks and
Delaware Counties.

Attorney David M Frees III can be reached by phone at 610-933-8069 or 610-240-0750

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If you are a Pennsylvania resident, your estate is subject to many death taxes including the Pennsylvania Inheritance and Estate Tax as well as the Federal Estate Tax. If you have been watching the news, you know that one of those tax systems – the federal estate tax is due to expire quite soon.

Why?

Congress has yet to act on the pending repeal of the federal estate tax. But, the pressures on our tax system are so great that most commentators feel that they must keep the tax in place. If Congress allows the tax to temporarily lapse, it appears that they might then re-enact it retroactively to the start of 2010.

In addition to being confusing to taxpayers, and raising a difficult constitutional issue, this makes rational estate tax planning almost impossible.

In any case, the question of repeal or repair of the federal estate tax (also known to its detractors as the “death tax”), will almost certainly be the next political hot potato after health care reform is resolved.

Have you made up your mind yet? We try to present many different views on this issue and we welcome your comments. We also encourage you to contact your Congressional representative and Senator to demand action on this vital issue.

Here is an article from the Heritage Foundation on 7 reasons to repeal rather than reform the federal estate tax.

Please leave your comments below.

David M. Frees III
Chairman: Trust, Estate and wealth Preservation Section
Unruh, Turner, Burke and Frees

Offices in: Phoenixville, Malvern and West Chester

wills trusts estates powers of attorney and living wills
estate planning

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While this is only a budget bill, and only in the Senate, there was some movement on estate tax reform today. If this type of bill were to ultimately pass the house and senate it would allow many more couples, and individuals to do estate and asset protection planning for their heirs without some of the difficult and expensive planning techniques now used only to avoid estate taxes.

While we are a long way from a bill like this becoming law, any increase in the shelter amount would allow planning more focused on protecting spouses and your other surviving heirs from divorces and lawsuits.

To read more on David Frees’ analysis of the Senate Budget bill and the estate tax click here.

By: David M. Frees III, Esquire
For more information on estate planning, legal tools for executors,
and asset protection planning, by probate, trust and estate planning lawyer David M. Frees III visit www.paestateplanners.com

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The length of the probate process in Pennsylvania (PA) or other states varies greatly from estate to estate. The determining factors include the assets involved in the estate, the experience of the Executor/Administrator and counsel and the ease in dealing with the beneficiaries. Contrary to common belief, the process is rarely impacted by the actual probate court requirements which can be accomplished timely if the other factors are favorable. Some of the most common causes for a delay in the estate administration process are:
1. Beneficiaries and family members who are not getting along with each other or with the Executor. The psychological and family related issues are sometimes the most difficult to respolve.
2. Hard to value assets such as closely held business interests or vacant land.
3. Assets which are difficult to sell such as real estate or business assets.
4. Complex estate tax and inheritance tax considerations.
You can review some of the probate requirements at the Chester County Register of Wills Website.
Let us know if you have any questions about the probate process, inheritance or estate taxes or other improtant estate administration issues.

Douglas L. Kaune
dkaune@utbf.com
610-933-8069

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