The expression, "Le bon Dieu est dans le detail", which has morphed into, "The devil is in the details", has been attributed to Gustave Flaubert. Flaubert died 128 years ago, so I never heard him say it. "The devil is in the details" has been attributed to Ludwig Mies van der Rohe - since he died about forty years ago, I never heard him say that, either. Regardless of who said it, and which variation applies, the expression is valid today.
We establish limited liability companies, family limited partnerships, or other entities to reduce value of stock for transfer tax purposes. These are very useful so long as the details are attended to.
The Internal Revenue Service does not like limited liability companies and family limited partnerships when they are used to save transfer taxes. Occasionally the Service finds a case in which the technique can be successfully attacked, and it is these cases which find their way into the newspapers.
Not to worry; if the details are attended to, the technique of transferring assets into an entity, and then dividing the ownership into small pieces will be recognized by the courts. The detail which trips up the taxpayers the most is failing to recognize that the assets which are transferred into the LLP or the FLP belong to that entity and its shareholders, and are no longer owned by the person who gave them away.
If a business, or a rental property, or a farm or an oil well is placed into an LLP or a FLP or one or the other of alphabet-soup devices that we use for the purpose, any relationship which the former owner has with the asset must be arm's-length. Arm's-length is an expression which we tax lawyers use as shorthand for, "You cannot eat your cake and have it too" or "You cannot have your cake and eat it too" - whichever iteration of the phrase you prefer.
If you have established a family limited partnership, a limited liability company, or some other entity for estate tax planning purposes, be careful about the details. We will be glad to assist you in making sure that your tax-saving plan will work for you.
This is one of a series of Notes to Our Friends from Haddleton & Associates, a law firm specializing in estate planning, probate, taxation, and elder law.
Russell E. Haddleton
Haddleton & Associates, P.C.
251 South Street
P.O. Box 1298,
Hyannis, MA 02601