Estate planners often use family limited liability companies and family limited partnerships to facilitate gifting and installment sales of minority interests or non-voting interests to family members or irrevocable trusts for the benefit of family members.
Under Code Section 2704(b) and Treasury Regulations §25.2704-2(a), if an interest in an entity is transferred to or for the benefit of a member of the transferor's family, any applicable restriction is disregarded in valuing the transferred interest.
Treasury Regulations §25.2704-2(b) defines an applicable restriction as a limitation on the ability to liquidate the entity (in whole or in part) that is more restrictive than the limitations that would apply under the state law generally applicable to the entity in the absence of the restriction.
Until now, all states have been limited to some form of the Uniform Laws. A number of states, including Nevada, have had favorable default restrictions that allow for slightly higher valuation discounts than the discounts that can be obtained using other states' laws.
But Nevada has now separated its valuation discount opportunities significantly in comparison to all other states. Specifically, Nevada Senate Bill 350 was signed into law by the Governor on May 29, 2009. One of the provisions of the new law, effective October 1, 2009, allows the creation of a Restricted LLC or a Restricted LP.
The difference between a Restricted LLC and Restricted LP versus a standard LLC and LP is that the Restricted LLC and LP have a default statute locking in the entity's underlying assets for a ten-year period. This creates a new significantly higher ceiling on valuation discounts that is not available in any other state.
Under Code Section 2704(b) and Treasury Regulations §25.2704-2(a), if an interest in an entity is transferred to or for the benefit of a member of the transferor's family, any applicable restriction is disregarded in valuing the transferred interest.
Treasury Regulations §25.2704-2(b) defines an applicable restriction as a limitation on the ability to liquidate the entity (in whole or in part) that is more restrictive than the limitations that would apply under the state law generally applicable to the entity in the absence of the restriction.
Until now, all states have been limited to some form of the Uniform Laws. A number of states, including Nevada, have had favorable default restrictions that allow for slightly higher valuation discounts than the discounts that can be obtained using other states' laws.
But Nevada has now separated its valuation discount opportunities significantly in comparison to all other states. Specifically, Nevada Senate Bill 350 was signed into law by the Governor on May 29, 2009. One of the provisions of the new law, effective October 1, 2009, allows the creation of a Restricted LLC or a Restricted LP.
The difference between a Restricted LLC and Restricted LP versus a standard LLC and LP is that the Restricted LLC and LP have a default statute locking in the entity's underlying assets for a ten-year period. This creates a new significantly higher ceiling on valuation discounts that is not available in any other state.
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