Forming a limited partnership or limited liability company, which is established for valid business purposes, may provide significant transfer tax savings at death or during life, allowing the donor, during his or her life as a general partner, to retain control over the entity’s assets. The main transfer tax (either gift tax during life or estate tax at death) benefit is the ability to apply a discount or adjustment to the ownership interests transferred, since it is actually the ownership interests of the entity that is being transferred, not the underlying assets owned by the entity. Valuation discounts allow for the gifting of a greater amount of ownership interests from one generation to another; or a valuation discount of the ownership interests of a decedent for estate tax purposes. The main factors that influence the valuation discount of the fair market value of the underlying assets owned by the entity are a lack of control discount and a lack of marketability discount. The adjustment or discount to the value of the ownership interests will vary based on the circumstances of each case.
With over 19 years of advising clients as a Certified Public Accountant and attorney, Bradley S. McCann has assisted in the formation of hundreds of business organizations to transfer assets at substantially discounted values from one generation to the next generation.