Take Advantage of a Rare Opportunity for Savings in Your Estate Plan

Preferred Partnership Freeze

It is no secret that a well-put-together Houston estate plan can save younger generations an enormous amount of money. However, few are aware of the rare opportunity for estate tax savings caused by the economic conditions surrounding COVID-19. By taking advantage of a Preferred Partnership Freeze (PPF), high net worth individuals can avoid costly estate taxes and continue to take full economic advantage of their assets. Individuals will want to act quickly to seize this opportunity, as this is hopefully a once-in-a-generation opportunity that may not be around for long.

The recent economic shutdown due to the COVID-19 pandemic has decreased the value of many assets, including closely held businesses, investment portfolios, and real estate properties. A Preferred Partnership Freeze allows individuals to freeze the current valuation of such assets, and recognize certain benefits down the road as a result. For assets expected to appreciate, future interests can be placed into a trust avoiding estate taxes on the increase in value. For depreciable assets such as rental real estate, individuals can take advantage of estate tax deferral as well as a tax-free step-up in basis, and increased depreciation and amortization.

A Preferred Partnership Freeze works by contributing assets towards a limited partnership, and establishing two classes of shares. One class of shares will represent the assets’ current value, while the other class will represent future interests. This freezes the current value of the assets, which the individual will maintain ownership over. Meanwhile, the future interests represented by the second class of shares will be transferred into a trust. By conveying ownership in the future interests of the assets, individuals can avoid estate taxes on the expected appreciation of their assets. Thus, high-net-worth individuals can still maintain control over their assets while avoiding estate taxes for generations to come.

This estate planning method can provide income tax savings to heirs as well. For example, say an individual owns several real estate properties obtained through several tax-deferred exchanges. As a result, their tax basis in the property is significantly lower than the actual value of the property. The Preferred Partnership Freeze allows them to take advantage of the estate tax savings mentioned above, while still allowing their heirs to receive an income tax-free step-up in basis when they inherit the property. As a result, they will be able to use the higher basis in calculating depreciation, thereby reducing their income tax liability on future rental income. All of this is made possible by carefully combining the best of partnership and estate tax rules.

Would A Preferred Partnership Freeze Benefit Your Houston Estate Plan?

If you are a high net-worth individual, it is a good idea to look into whether your estate plan could benefit from a preferred partnership freeze. McCulloch & Miller, PLLC is a Houston estate planning law firm with skilled attorneys ready to help you take advantage of every available opportunity. Our attorneys have the knowledge and experience to craft a comprehensive estate plan that meets your desires. Contact our office for a consultation by calling 713-333-8900.

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