good discussion on estate planning - by JY

By JY - From online forum

good discussion on estate planning 2009-06-07 21:50:07

good discussion on estate planning, thanks to baysouth...

来源: baysouth

严格说, 美国没有避税天堂.

很多人认为有了Trust就可省税, 这是误导. Trust的主要功能是避免Probate. Trust 本身是一个单独的纳税实体. A/B A/A trust等有上限限制, IRS 不可能让你设立一系列的Trust来逃避遗产税.

利用保险并非说你不缴纳遗产税, IRS 还是照常要收税, 只不过是利用保险创造出的leverage 给你提供了税款, 从而到达了省税的效果.



来源: jy101

Agree that A/B or A/B/C types trusts still have to face death taxes, most of the time, you purchases a life insurances policy in C trust to pay to taxes.

I think the best way to avoid death taxes will be small company like S-corp or LLC/LLP, you gift portion of shares as you grow old.



来源: baysouth

Small companies need to have buy/sell agreement, which is still an arrangement through life insurance, to raise the cost basis of the company to minimize taxes

As we can see from these threads, Life Insurance is an effective instrument to reduce death taxes, few other methods can as cost-effective



来源: jy101


the main adv of family limited partnership - ability to transfer / gift between partners without gift tax or estate tax.


family Limited Partnership (FLP)

A Family Limited Partnership, or FLP, is a limited partnership in which ownership is restricted to a confined group—family members. This aspect differs from other types of partnerships and corporations where transfers of interest are unrestricted or are publicly traded. The FLP is a valuable tool for centralizing management of a family business and passing limited partnership interests to the next generation.

A Family Limited Partnership is formed with a written Partnership Agreement. Provisions in the partnership agreement can restrict how or if partnership interests are transferred, sold, or encumbered. The FLP consists of general voting partners and limited non-voting partners. Typically, the senior generation acts as the general partners for the FLP and maintains control over partnership activities. The younger generation enters the partnership as limited partners, who hold an ownership interest in the partnership but little or no management authority. Eventually, limited partners transition to general partners.

Advantages of the FLP include:

* limiting ownership interests to family members,
* allowing for an incremental and smooth transfer from one generation to the next,
* having the ability to transfer partnership interests free of gift tax, and
* providing limited financial liability for limited partners.

An FLP must be registered with the state


来源: baysouth


有一利必有一弊 搞不好弄巧成拙


Family Limited Partnerships can be abusive tax-free wealth transfers. How does the family limited partnership work and what are the disadvantages? Two discount estate tax valutions of underlying assets are used as a tax deferral strategy when gifting to the younger generation.

Family limited partnerships, one such traditional limited partnership, have been over marketed as wealth transfer devises. Family limited partnerships are red flags for the Internal Revenue Service as abusive tax-free wealth transfers. Family partnerships have been widely propagated as the devise of choice for transferring the family business and other highly appreciated assets tax-free from parents to their children.

Different programs are available to transfer ownership and the management of a family business. The Family limited partnership is nothing more than the traditional partnership for which "only family members" can be partners as either general partners or limited partners.

Did you know that general partners of family partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures? The problem is avoided if an irrevocable trust such as the Ultra Trust174; (not a revocable trust) is used as the general partner of your family limited partnership.
How does the Family Limited Partnership Work?

The older generation (i.e. parents) become owners with 2% stake in the business and thereby establish themselves as general partners in a family limited partnership. Over a period of time, by gifting limited partnership interests, the younger generation (i.e. children) end up as limited partners with a 98% stake in the business. This all sounds wonderful and an almost ideal tax deferral strategy. But is there a catch to all of this great tax-free wealth transfer and strategy?
Gifting to the Younger Generation with a Family Limited Partnership

The result is highly appreciated assets are transferred from the estate of the parents to the children presumably tax-free. When carefully and properly implemented the family limited partnership is a useful tool. But there are better ways to achieve a significantly more efficient transfer of wealth.

Did you know the IRS considers these family limited partnership arrangements abusive when overzealous practitioners over claim two commonly used discounts in the valuation of underlying (highly appreciated) assets in estate tax valuations? The IRS comes down significantly hard, when these arrangements are made over a deathbed especially in the hours or days before death. Please note that there's an increasing congressional opposition to the use of family limited partnerships.
Two Discount Estate Tax Valuations of Underlying Assets in Family Partnerships are:

1. Lack of marketability discounting which is typically 15% to 35% reduced estate tax valuation due to a limited market for the business or the assets, if sold.
2. Limited minority interest discounting which is typically an additional 15% to 35% reduced estate tax valuation to the minority position (lack of control) in the business or underlying assets.

Combined, these two discounts can amount up to 70% or more. But how much is too much?
Disadvantages of Family Limited Partnerships:

1. Gifted property does NOT receive the "stepped-up" basis treatment that bequeathed property receives. Therefore the children, who have received "gifted partnership interests" may face unexpected capital gains tax liability. If discounting is reasonably and carefully applied, it's a significant tax saving devise. Keeping in mind that it's great for the parents, not so good for the children because of the unexpected capital gains tax liability that can be imposed on the children.
2. General partners are not insulated from potential lawsuits, judgments, or creditor seizures. This problem can be avoided if the general partner is the Ultra Trust. The parents as general partners are 100% in control of the assets and 100% responsible for a potential lawsuit. General partners will have no asset protection in these cases.

Family Business Succession Estate Planning:

If you have an interest in family business succession planning, there are several financially-engineered devises addressing the following important issues:

* Ownership of family business - Which of the family members will become the future owners of the business? What method or combination of methods is the most effective in consideration of asset protection and wealth preservation, elimination of probate, deferral of capital gains taxes, elimination of estate taxes, and reduction of taxes on earned income or possibly eliminate income taxes.
* Control of your family business - Which of the family members will become the future managers. Not all family members have management skills. Some family members should have voting control, while others must become silent partners.
* Dispute resolution - How will family members deal with potential disputes? What mechanism is fair to controlling and non-controlling family members?
* Employment - Which family members will be employed by the business?


来源: jy101


haha, good discussion, I totally agree the 2 disadvantage.

1. no step up value. this can be good and bad, no step up meaning assets pass on next generation tax free, the problem is when you try to sale, you will pay capital gain taxes, but 45% estate tax vs. 15% capital gain, it still a good deal.

2. partners are liable from law suit arise from assets, this can be solve by liability insurance.