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:

3. Could it make a difference (in determining the success of obtaining a transfer tax discount) if the children were already in the same business and had obtained work experience? Cite yes or no, state why and give citation of supporting authority.

4. As an alternate structure, Ds advisor suggests that D transfer all assets to an irrevocable trust. The terms of the trust would be that for a term of 10-years the trust would pay all income to D, and then distribute all assets equally among Ds 4 children. Ds advisor suggests that D could transfer the property at a discount equal to the FMV of the property transferred less the value of the income interest retained by D.

1. Do you believe D will receive a gift tax discount (YES or NO and cite authority)?
2. Would it make a difference if the beneficiaries were Ds nieces and nephews and not D children (YES or NO cite authority)?