Family Partnership

How does the reduced value help with annual giving?

These discounts in the value of the limited partnership interests allow you to effectively make larger annual tax-free gifts. For example, if for gift tax purposes a 40% discount is allowed for the limited partnership interests (due to the lack of control and lack of marketability discounts), you could transfer limited partnership interests representing up to $16,600 in "underlying" partnership assets without exceeding your annual gift tax exclusion of $10,000 per donee ($16,600 X 60% = $10,000).

Under current law, your annual gift tax exclusion allows you to transfer up to $10,000 per year to each individual without such transfer being subject to gift tax; together, you and your spouse can transfer up to $20,000 per year (in the above example, your combined annual gift tax exclusions would allow for a transfer of $33,200 in "re-discount" partnership interests.) As can be seen by this example, the discount associated with your gifted limited partnership interests will allow you to transfer a greater amount of 'underlying’ partnership assets without exceeding the amount of your annual exclusions from gift tax.

Continuing this example, if you wish to use your unified credit to shelter the gift tax on gifts of partnership interests in excess of your annual exclusion amount, $1,125,000 in partnership interests could be transferred without exceeding the $675,000 amount sheltered from tax by your unified credit ($1,125,000 X 60% = $675,000).

Under current law, your unified credit will shelter the first $675,000 of transferred assets (whether during your lifetime or at death) from gift or estate tax, respectively. If both you and your spouse wish to use your unified credits to transfer limited partnership interests to you children, using the above example of a 40% discount in the value of the partnership interests, up to 2,250,000 partnership units (interests) of partnership assets could be transferred without paying any gift tax ($2,250,000 X 60% = $1,350,000)."