Structuring Preferred Partnership Freezes in Estate Planning: Chapter 14 Valuation Rules, Transferring Assets, Basis

A preferred freeze partnership can be a useful and flexible estate planning tool, especially for highly leveraged, low basis real estate. In its most basic form, a properly structured preferred partnership freezes a class of partnership interest by limiting it to a fixed rate of return, thus concentrating the accumulation of growth in the partnership value on the non-frozen interests. Advisers must understand the special valuation rules of Chapter 14 of the IRC to avoid potentially costly tax consequences. Such a structure may also achieve significant income tax savings from a step-up in basis for the retained frozen interest at death.

Structuring a basic freeze partnership involves a taxpayer--usually a parent--contributing assets to a partnership or LLC in exchange for partnership interests that pay a fixed, preferred return. The remaining partners receive common growth interests. In structuring the partnership, advisers must carefully navigate the technical rules of IRC Section 2701-2704 or the transfer may result in a deemed taxable gift.

Freeze partnerships can also be structured in other ways, including the "reverse freeze," and in combination with various other planning vehicles to achieve tax and non-tax objectives, including trusts such as QTIP trusts and CLATs, as part of a comprehensive plan to pass down wealth to future beneficiaries.

Listen as our experienced speaker provides a thorough guide to the benefits, risks, and structuring techniques of preferred freeze partnerships in estate planning.

1. Structures, mechanics, and operations of freeze partnerships
2. Gift tax issues to avoid at the formation
3. Valuation requirements in IRC 2701-2704
4. Reverse preferred partnerships
5. Recent developments

The panelist will review these and other key issues:

• Structures, mechanics, and operations of freeze partnerships
• Differences in various freeze techniques
• Why clients prefer partnership freezes over other trust freeze techniques
• Gift tax issues to avoid at formation
• How not to run afoul of the valuation requirements in IRC 2701-2704
• Reverse preferred partnerships
• Recent developments

Learning Objectives

After completing this course, you will be able to:

• Understand differences in various freeze techniques and their impact on estate and tax planning
• Recognize the gift tax issues to avoid at formation of trusts
• Ascertain methods to avoid running afoul of the valuation requirements in IRC 2701-2704

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of estate, gift and trust taxation including various trusts types, the unified credit, and portability.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).