Planning Potpourri

Protect Home Mortgage Interest Deduction:

The mortgage market remains chaotic. Parents may have to help children out with a loan if no other source is available. But for the kids to deduct the interest paid to their parents the parents must secure and perfect their loan under state law (recording a mortgage), or the interest paid won't qualify for the home mortgage interest deduction.


Custodial Account into FLP:

A common scenario is a parent endeavoring to consolidate various family investment accounts into a single family investment entity, such as a family limited partnership (FLP).  Custodial funds belong to the child and some brokerage firms won't transfer custodial funds into an FLP account that restricts the child's access to the funds greater than the custodian account. Possible solution: include in the partnership agreement a special withdrawal right that lets the child have a window, say 60-days, after attaining the age of majority to withdraw the economic value of his or her partnership interest without discount or reduction. This is analogous to the withdrawal right given under 2503(c) trusts when the child beneficiary reaches age 21. "Notwithstanding anything herein to the contrary, if any partner is a minor for whom custodial funds were transferred or invested in this Partnership ("Minor Partner"), then upon the minor attaining the age of majority (determined by the laws of the State) such Minor Partner may upon notice given at any time within Sixty (60) days of the date of attaining the age of majority that all of his or her partnership interests attributable to said custodial fund contribution and the growth thereon must be liquidated and the fair value therefore, unreduced by discounts, be distributed to said partner. If this right is not exercised within said period this right shall lapse."


Estate Tax Deferral:
Executors can defer estate tax on interests in closely held businesses if a series of requirements are met. Deferral is not available to non-business assets. Is cash held in a business a business asset? Planning tip: If you are holding cash in a business for working capital, repair or other needs, corroborate that with periodic entity minutes confirming the business reasons for holding the cash.

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