Family partnerships and LLCs have been used for many years as a means of allowing family members to own assets jointly and to allow assets to be distributed in a relatively easy manner when one of the family members passes away.
The practice began as a way to handle control of family-owned businesses. However, when a family-owned business is owned by a family legal entity, the only way anyone else could buy into the business is by becoming a member of the partnership or LLC.
For this reason difficult to value property, like businesses, have traditionally received a valuation discount for tax purposes. The theory was that because of the nature of the ownership situation, third-party buyers would expect a discounted price.
The IRS began to have problems however when wealthy people began putting easy to value property into the family partnerships, such as securities and even cash. Many people sought to get tax discounts on that property, and when challenged by the IRS, the wealthy people often won in court.
Now, backed by the Obama administration, new regulations are expected to put an end to the practice as reported recently by the New York Times in "Navigating Tougher I.R.S. Rules for Family Partnerships."
What precisely the new rules will contain is still unknown. However, if you use a family partnership, now would be a good time to speak with your estate planning attorney to see what, if any, changes you need to make.
Reference: New York Times (August 7, 2015) "Navigating Tougher I.R.S. Rules for Family Partnerships."