USA – FLORIDA Law and Practice Contributed by: Jennifer Jordan McCall, Drew Reitz, Christine Tsai and Maria Williams, Pillsbury Winthrop Shaw Pittman LLP
ing for Florida homestead exemption (as described in 1.2 Exemptions ) are also protected from certain creditors. The protections can extend to one half-acre of contiguous land (if located within a municipality) or 160 acres of contiguous land (if located outside a municipality). 4.2 Succession Planning Family businesses can be transferred in many ways. One method is to transfer a minority interest in the family business to an irrevocable trust (often an IDGT) for the benefit of future generations. It can be pos - sible to recapitalise a business entity into voting and non-voting equity interests, such that the senior family member may retain voting control in certain cases, if desired, but taking into account the evolving tax law in this area. A significant portion of the non-voting interests can be transferred to a trust through vari - ous planning mechanisms, with the voting interests passing at death generally through a revocable trust. This is a highly efficient business succession planning strategy. Care must be taken to comply with recent Tax Court cases and evolving statutes, so that any control retained by the grantor does not cause the business assets, although transferred, to neverthe - less be includable in his or her estate for estate tax purposes. Another mechanism is to transfer assets into a “family limited partnership” (FLP). A FLP is generally a lim - ited liability company structured to be a partnership for income tax purposes by having multiple members (often the parent and their children). The senior fam - ily member makes the most significant contribution to the FLP, generally receiving a majority or perhaps voting and non-voting interests. The senior family member then makes gifts of minority interests/non- voting interests to trusts for the benefit of their family members. These gifts utilise the senior family mem - ber’s available gift tax and GST tax exemptions, but they transfer the underlying assets at a marketability and control discount which then appreciate outside of the taxable estate. Note that this structure requires careful planning to avoid inclusion in the senior family member’s taxable estate. Experienced counsel should be consulted in any event.
A third mechanism, which is particularly useful for real estate investors, is to create a “freeze partnership”. A freeze partnership is generally a limited liability com - pany (LLC) that is designed to hold all of the sen - ior family members’ real property assets through a holding company. The LLC will issue preferred and common interests in the LLC to the senior genera - tion family member. The preferred interest must pay a distribution each year (called a “coupon”) at a fair market value rate, on a cumulative basis, and at a fixed rate. Assuming these requirements are satis - fied, the payment should qualify for special treatment under the Internal Revenue Code so as not to create an imputed gift under Section 2701. This structure permits “freezing” the value of the preferred interest. The common interest, or a portion of it, is generally given to an IDGT, allowing the common interests to grow gift and estate tax free. Voting control can be given to either the common interests or the preferred interests or to both of them, which provides flexibility to achieve business succession goals, again subject When a non-controlling interest in a private entity is transferred either during an individual’s lifetime or at their death, the fair market value of the interest is gen - erally entitled to a discount for lack of control. If such interest also lacks liquidity, it generally will qualify for an additional discount for lack of marketability as well. An appraisal from a qualified appraiser should gener - ally be obtained to value the underlying asset(s) and the fractional interest for gift or estate tax purposes. Publicly traded securities do not qualify for these dis - counts. to evolving tax laws in this area. 4.3 Transfer of Partial Interest
5. Wealth Disputes 5.1 Trends Driving Disputes
Wealth disputes can arise when a child or other poten - tial heir is excluded from a decedent’s will or revocable trust or otherwise receives less than other children or heirs. In many jurisdictions, it is standard for a will or revocable trust to have a “no contest” provision. Such a provision states that if a potential heir challenges a will or trust, they are disinherited entirely. Often, a
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