Moser v. Moser case

fore, a limited partner may lose her I have unlimited liability for limited partnership obligations. has been created has unlimited liability for the obligation A lack of substantial compliance might result from fail- of the limited partnership. ing to file a certificate of limited partnership or from fil- In the following Moser v. Moser case, a husband and wife ing a defective certificate. A defective certificate might, for tried to use a family limited partnership to reduce taxes example, misstate the name of the limited partnership. Although they properly formed the limited partnership they failed to comply with tax law and otherwise to keep Limited Partners Infrequently, a person will believe that the limited partnership's assets separate from themselves she is a limited partner but discover later that she has been Consequently, the court ruled that the husband and wife designated a general partner or that the general partners had not made a gift of the limited partnership's property have not filed a certificate of limited partnership. In such to their children. Moser v. Moser 2007-Ohio-4109 (Ct. App. 2007) Terrance and Barbara Moser were married on October 11, 1980. Over the next 16 years, they had two children, Shannon and Joshua, and accumulated assets in excess of $2 million. On December 31, 1996, Terrance and Barbara signed a document creating the Moser Family Limited Partnership. A family limited partnership is an estate planning device designed to minimize tax liabilities. The Moser Family Limited Partnership was set up with Terrance, as trustee of a revocable trust holding his assets, as general partner: Barbara, as trustee of a revocable trust holding her assets, as a limited partner; and Shannon and Joshua as limited partners, with Barbara as their custodian. Typically, a family partnership is funded with assets having a high potential for appreciation. Parents will then give to their children a certain number of units or a percentage interest in the limited partnership, without tax liability, taking advantage of the gift tax exclusion. At the time the Moser Family Limited Partnership was created, the annual gift tax exclusion was $10,000. In order to function properly as an estate planning device, the gifts of partnership interest to the children had to be completed, irrevocable gifts. In this way, wealth could be transferred to children during the parents lifetime, thus avoiding estate taxes, while the parents would be able to maintain a certain amount of control of the wealth, by virtue of the general partner's control of the partnership. After its creation, the Moser Family Limited Partnership, in conjunction with Moser Construction and other business entities previously owned and operated by the Mosers, successfully oversaw several land development ventures. Unfortunately, Terrance and Barbara had marital problems. On January 17, 2003. Barbara filed for divorce. In addition to naming Terrance as a defendant, she also named the Moser Family Limited Partnership as an additional defendant, arguing that its assets were part of the marital estate and that she should receive a portion of the limited partnership's assets. The trial court agreed with Barbara. The court determined the total value of the marital estate to be $3.778.764, of which $1.507.663 represented the net value of the Moser Family Limited Partnership, Terrance appealed the decision to an Ohio appellate court. MAR 8 20 MacBook Air 80 000 poo F3 F4 F5 DII F6File Edit View History Bookmarks Window Help platform.virdocs.com V M N E E E Part Nine Partnerships 40-12 The trial court determined that Terrance and Barbara had not Grendell, Judge made valid, inter vivos gifts of their interests in the Moser Family Terrance raises two arguments. The first is that the trial court Limited Partnership to the Moser children. In Barbara's case, the erred by invalidating the gifts of partnership interest to the Moser court relied upon her testimony that she did not intend to relin- children. The second is that the trial court erred by treating part- quish ownership interest in the Partnership until her death. nership assets as marital property. In Terrance's case, the court found the intent to make such a gift As any initial assets of the Partnership were marital, Terrance in the Memoranda of Gifts signed by Terrance on December 31, and Barbara were deemed to be equal partners, ie., 50 percent own- ers of the partnership shares. The trial court found that transfers 1997. However, the court also found that there was no delivery of of interest in the Moser Family Limited Partnership to the Moser the Memorandum of Gift letters to the Moser children or to Barbara children did not occur on December 31, 1996, and January 1, 1997, as their custodian. The court also concluded that Terrance had not as purported in the federal gift tax returns. Leslie D. Smeach is relinquished control over his ownership interest in the Partnership a certified public accountant who did work for Terrance. Smeach in a manner consistent with the intent to make a gift. testified that the valuation of the partnership units allegedly given There was considerable testimony from various witnesses at the to the Moser children on December 31, 1996, and January 1, 1997, hearings which likened Terrance's powers under the Moser Fam- did not occur until April 1997. Prior to this valuation, it would have ily Limited Partnership to those of "a benevolent dictator." There been impossible to determine the number of partnership units that was also evidence at the hearings that Terrance exercised this could be given in accordance with the gift tax exclusion. power freely. When the marital residence was inadvertently trans- The trial court also found that Terrance operated the Moser ferred into the Partnership, Terrance transferred it out. Terrance Family Limited Partnership and its subsidiary companies as his used Partnership funds to meet the expenses of other businesses own personal assets. The court noted the free transfer of funds owned by him. As noted above, there was considerable "cash flow" between business entities that were part of, or associated with, the between entities existing both within and without the Partnership. Moser Family Limited Partnership. For example, although the Accordingly, the trial court had jurisdiction over the Moser tax returns indicated the Moser Family Limited Partnership pos Family Limited Partnership and its partners and could exercise that sessed a 50 percent interest in Rootstown Storage Partnership, jurisdiction to order Terrance to assign specific partnership prop- Terrance continued to list Rootstown Storage as an asset on his erties so as to effectuate a fair and equitable division of property. personal financial statements. In April 2000, Terrance received a personal distribution of $55,000 from Rootstown Storage. Judgment for Barbara Moser affirmed. Rights and Liabilities includes cash, tangible or intangible property, services ren- of Partners in Limited dered, a promissory note, or a promise to contribute cash, Partnerships property, or services. A partner is obligated to contribute as he promised. This obligation may be enforced by the limited partnership or by any of its creditors. Explain the attributes of a limited partnership and the 1040-3) default rights and liabilities of partners in a limited partnership Share of Profits and Losses Under the ULPA, profits and losses are shared on the basis of the value of each part- 72,723 MAR 84 8 A MacBook