There are several types of legal entities that often surface in estate planning. In addition to trusts, there are separate legal entities that you may be utilizing which may have specific implications in your overall estate plan. They may include corporations, limited liability companies and partnerships. Congress has enacted specific rules for the valuation of various transfers of business interests. They are contained in Chapter 14 of the Internal Revenue Code of 1986, as amended. Corporations, limited liability companies and limited partnerships can provide you with limited liability when operating a business entity. Furthermore, a family limited partnership can often be structured in a manner that provides individuals in high risk professions protection from potential creditors.
One problem commonly encountered in the estate planning area concerning corporations, limited liability companies and partnerships is the difficulty in valuing interests that you may own in those types of entities for purposes of determining the amount of a gift or the value of those interests for purposes of determining estate taxes. The rules contained in various provisions in the Internal Revenue Code do not provide much guidance and valuation questions often end up in a battle between your appraiser and the government's appraiser. As a result of recent federal court decisions addressing the valuation of interests in entities for transfer tax purposes, significant gift and estate tax savings can be obtained when properly integrating the use of legal entities with estate tax planning.
A careful review of the federal court decisions clearly illustrates the necessity of retaining competent legal counsel and experienced business appraisers to properly implement this type of planning strategy. A portion, or all, of the value of an interest in a family owned business may be excluded from your gross estate for purposes of determining federal estate tax liability under very limited circumstances. The rules governing this exclusion are extremely complex and require careful analysis.