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Deadline could be looming for 1 popular family trust tool

Have you ever heard of a family limited partnership or family limited liability company? Forgive yourself if you haven't. If you have and you're among those in Texas who have thought about setting up an entity using one of these trusts as part of a comprehensive estate plan, you will want to read further.

Those with experience in this area of law know that these vehicles have been used for quite some time as a way to reduce taxes. However, the Treasury Department recently announced its intention to change the rules to make them less beneficial. The reason for the action, officials say, is abuse by wealthy families that has cost the government millions in revenue.

The way FLPs or FLLCs work is this: Wealthy parents take marketable, but hard to value, assets and put them into a trust for their children. These might include a family business, real estate or certain investments that might be hard to liquidate. The parents typically discount the assets' values and that leads to a lower overall tax hit for the group.

The problem, says the IRS, is that sometimes the assets in the trust have clear cash value, but agency to challenge the entities have delivered mixed results in the courts and so the discounts have continued.

It's not clear when the rules might take effect, but one Treasury Department adviser is on record as saying it could be as soon as next month.

That has some in estate planning predicting that the door will close on some of the more questionable asset assignments and discounts claimed. That door isn't closed yet, however, which has some advisers urging clients to speed up their plans if they want to create such a trust.

At the very least, you should be consulting an experienced attorney to understand the ramifications.

Source: NYTimes.com, "Navigating Tougher I.R.S. Rules for Family Partnerships," Paul Sullivan, Aug. 7, 2016

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