Preserve Your Stock Wealth,
Fund a Family Entity with Marketable Securities

Many taxpayers have discovered that one of the best vehicles for preserving the family wealth is to establish a family limited partnership ("FLP") or other family entity funded with marketable securities. This opportunity can significantly reduce future estate tax liabilities. However, it is possible that the IRS will act soon to minimize this tax saving strategy. As always, a forward thinking, long term financial and estate planning strategy can have huge rewards. Don’t delay, you may miss out! Please read on…

When properly established, family held entities can be very powerful estate planning tools.

One of the most attractive benefits of establishing an FLP is the ability to transfer wealth to heirs at a discount. These discounts arise as a result of:

• Lack of control
• Lack of marketability
• Lack of liquidity
• Restrictions on transferability
• Unfavorable tax attributes

For these reasons and many others, fractional interests in closely held entities trade at a discount to their pro rata share of the entity’s underlying assets. While valuation discounts vary depending on the specific circumstances of each situation, we have experienced that these valuation discounts typically range from 35% to 50%. Three specific FLP’s owning marketable securities have been cleared by VSI with the IRS at discounts of 36%, 42%, and 48%. Used properly, these valuation discounts can translate into significant tax savings.

The tax courts have also recognized the existence of these discounts.

In the Davis case, the tax court concluded the appropriate discounts for lack of control and lack of marketability to be 15% and 28%, respectively. While the exact fact patterns of the Davis case and an interest in your family entity may differ, it is important to recognize that the tax court in that case determined that valuation discounts were appropriate in valuing a minority interest in a closely held entity in which 85% of its assets consisted of marketable securities.

VSI has extensive experience in the formation and valuation of family entities and can be a valuable asset to your estate planning team. Call us today at (301) 770-2077 to discuss how we can help you preserve your stock wealth through the use of FLPs and funded with marketable securities. But don’t delay, this opportunity may not last forever.