Digital Signature Licitness for Assignment of Partnership Interest in United States

How to eSign a document: digital signature licitness for Assignment of Partnership Interest in United States

hi this is Jared Collister and you're watching understanding family limited partnerships if you own a business and have a family one of your major concerns is how you'll be able to transfer that business to your children in an orderly structured and tax efficient manner if you've owned and controlled this business for years the idea of completely turning over the reins to one of your children is likely troubling one tool that is available to use known as a family limited partnership a family limited partnership is simply a limited partnership but is structured in a way that allow you the business owner to transfer value in your business to your children but without giving up control in addition it will allow you to make significant gifts to your children and reduced gift tax cost so does this work first you form a limited partnership now look at a partnership has two types of partners voting partners or general partners and non voting partners or limited partners so does the general parties that actually control the family look at partnership now when you form the family limited partnership you only create a small percentage of general party interests save 5% with a rest limited partner interests so at inception you would own 100% of the family limit partnership now let's say that you're ready to transfer some ownership interest into the hands of your kids you can start to make gifts to them of your limited partnership interests while this transfers value you still retain control because you still hold all of the general partnership interest and so over time you could give away all of your limited partnership interests but still completely control the family limited partnership now another advantage is that when you make these gifts you can actually give away a lot of company value at a reduced gift tax cost for example let's assume that the family limited partnership has a value of 10 million dollars let's also assume that in one year you decide to make a gift of a 25 percent the limited partnership interest your child now conventional wisdom would be that if you give away 25% of a 10 million dollar company that 25% interest would be worth around 2.5 million so it's seem that you've just made a two point five million dollar gift which could be subject to gift tax however for tax purposes we don't have to concede that you made a two point five million dollar gift after all would someone really pay two point five million dollars for 25% interest in your closely held family owned family law partnership answer's no well why not for two reasons the first is that these are non-voting interests and so why acquiring these interests the buyer really doesn't have a say at all in the management and the operations of the business the second is that these interests can't be sold on any public market or exchange so it's difficult to find a willing buyer because of these two factors the IRS will allow you to discount or reduce the value of this gift significantly generally one could take the position that this gift should be reduced by around thirty percent in value so that the gift is not really a 2.5 million dollar gift but is instead a 1.75 million dollar gift so even though you're really giving away property worth around 2.5 million dollars for tax purposes it is really only considered a gift of 1.75 million in essence $750,000 has passed estate and gift tax free to your kids now in addition to the ability to make these discounted gifts while retaining control the family limited partnership has other unique advantages it lets you consolidate ownership and control her assets into one entity it offers a degree of creditor protection for the limited partners it offers some income tax benefits and it can help preserve family ownership for future generations that goes without saying that establishing a family limited partnership requires careful planning and execution thanks for watching you