In answering the research questions cite primary authority (Code Section, Treasury Regulation, Revenue Procedure). You may use secondary authorities to conduct your research, but you must cite primary authority in your answer.

RESEARCH QUESTIONS

D has three assets which make up the vast majority of Ds estate: (i) Ds house (real estate) valued at $18,000,000, with an adjusted basis of $1,000,000, (ii) an operating business valued at $72,000,000, and (iii) a bank account with $10,000,000 cash. D has already used the majority of Ds unified credit. D would like to transfer these assets to the next generation at as low of a transfer tax cost as possible. D trusts the next generation (his four children) and is not opposed to ceding financial control to them, however, as D has superior working knowledge of the business, D would like to maintain some form of operational control at least until Ds children are ready to take over the business, and of course D needs a place to live.

D has been told by one of Ds financial advisors that if he transfers some or all of his assets to a Partnership and then transfers/gifts non-voting (limited) partnership interests to Ds children, D will receive a transfer tax discount for lack of marketability (difficult to sell) and lack of control (if recipient cant vote their shares or is in a minority position). D has also been told that there is a possibility of reducing transfer taxes by transferring just a remainder interest to a trust a retaining an income interest for life.

Questions:

2. Ds advisor has suggested the following: That D transfer some assets to partnership P (P) in exchange for a 98% limited partnership interest (non-voting) and additionally transfer cash to P in exchange for a general partnership interest (voting and control rights) which could or could not be 100% of the General Partnership. (The General Partner, by majority vote, has the power to make/control partnership distributions, business decisions and operations). D would then transfer/gift the limited partnership interests to Ds children. Ds advisor believes that D will receive a gift tax discount for the transfers of the limited partnership interests to Ds children, and thus remove substantial value from Ds estate (the limited partnership interest gifted to children).
   1. Below are separate additional suggested actions that D can take with regard to the trust. For each additional suggestion state whether the suggestion will help or not help D achieve the goal of reducing Ds transfer tax, a brief statement why, and cite at least one primary authority to support your conclusion:
      1. Suggestion 1: Include a clause in the partnership agreement which states that D is entitled to live in the house and receive minimum distributions for Ds support from P (e. not in the partnerships (General Partners) discretion
      2. Suggestion 2: D would transfer all assets to P, except for $2,000,000, in exchange for a 98% limited partnership interest (which D would then transfer to children) and transfer the $2,000,000 to P in exchange for a General Partnership Interest which D would control 100%.
      3. Suggestion 3: D should not transfer all assets to P. D should retain asset (i), Ds house, to own personally.
      4. Suggestion 4: Ds kids should each also contribute assets to the General partnership and kids should receive a proportional share of partnership interest (receive an ownership percentage equal to what they contributed). Kids should receive at least a 50% interest in the General Partnership. Additionally, the partnership should contain a clause which states that all partnership distributions must be made proportionally to the ownership interest.