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Partnership Tax Law - Technical... Partnership Tax Law -

Partnership Tax Law - Technical... Partnership...
Partnership Tax Law - Technical...
Partnership Tax Law - Technical Termination Question: A grantor trust held 67% ownership of family limited partnership. The grantor died in March 2017, the grantor trust automatically converted to an irrevocable trust maintaining the 67% family limited partnership interest, along with other assetsowned by the grantor trust prior to grantor's death. My question is, has the family limited partnership experienced a technical termination due to transfer in greater than 50% ownership in a one year period, causing the need to create a new partnership entity, or can I continue with the existing partnership on the basis the distinction between the two types of trusts (pre and post-death) is irrelevant to the existence and operation of the family owned limited partnership? For what it is worth, the intent is to liquidate the family limited partnership as soon as possible. Any assistance and/or reference to IRC section would be greatly appreciated!
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Customer reply replied 7 months ago
Can a family limited partnership continue after the death of a 67% partner, who was an revocable grantor trust, upon the death of the grantor and the holdings in the revocable trust being transferred to a irrevocable trust or should a new family limited partnership be formed due to a technical termination caused by change in > 50% ownership of the partnership? The irrevocable trust beneficiaries were unchanged from those in the preceding revocable trust. A new federal employer identification number was obtained for the new irrevocable trust and the name was changed, but otherwise the trust remained the same. The intent of the named beneficiaries are to liquidate the trust as soon as the trust assets can be sold, and their are no limitations to liquidation in the trust document. Has a technical termination occurred with the family limited partnership, or can the existing family limited partnership continue?
Answered in 1 day by:
6/15/2017
Law Educator, Esq.
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Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
The FLP can continue after the death of the 67% member, because that members shares would be inherited by someone and those heirs would take over his percentage of ownership and the FLP can continue unless the partnership agreement says it terminates at death.
If there is an irrevocable trust, that would remain as well unless the trust allows for dissolution upon the death. If the irrevocable trust does not contain a dissolution on death of the grantor clause, then all beneficiaries have to agree and the trustee has to agree that the purpose of the irrevocable trust no longer exists AND then they have to have a trust attorney file in court to ask for a court order to dissolve the irrevocable trust. Those are the only ways to dissolve an irrevocable trust.
The FLP can still continue with the heirs assuming the ownership percentage of the deceased unless the FLP documents say otherwise.
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Customer reply replied 7 months ago
My question is more on a tax basis, rather than legal. Only the revocable grantor trust existed prior to death and was converted to irrevocable upon death of the grantor. The FLP owned 67% by grantor trust transfered to the irrevocable trust, new name and separate federal EIN. Does this transfer of greater than 50% of FLP (from revocable to irrevocable trust) trigger a "technical termination" of the FLP or can FLP continue with the new irrevocable trust as 67% owner? The beneficiaries are the same in the revocable trust as they were in the pre-death revocable grantor trust. Furthermore, the trust beneficiaries are the holders of the remaining 33% ownership of FLP. Does this additional information change your original position that the FLP can continue post ownership transfer? Does the IRS consider the transfer from revocable to irrevocable trust ownership as an exchange of ownership interests? Thank you for addressing my initial and follow-up question.
Thank you for your reply.
There was no termination of the FLP, technical or otherwise, the FLP continues with the trust as owner if the trust was the beneficiary of the deceased. Furthermore, if the property went to the trust, then there is a stepped up basis, no different than with an A-B trust. So the new irrevocable trust would receive a stepped up basis.
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