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Estate Tax-Limited Partnership

The Tax Court Memo 2011 – 209 issued August 30, 2011, was an interesting case regarding the Estate of Turner. A limited partnership was created for the decedent and his wife and they transferred securities into the partnership. The Court found that management of securities is a legitimate nontax purpose if the assets involved required active management or special protection, or if it was stock of an operating business that required management. The Court found that the record failed to establish any meaningful activity of the marketable securities while in the partnership. The Court found that the decedent commingled personal and partnership funds and used partnership funds for personal gifts and personal bills. The Court found that the decedent, as general partner, had the right to amend the partnership agreement at any time without the consent of the limited partners. The Court found that the partnership was primarily testamentary and not for the active management of investments or business. In summary, the Court found that the transfer to the partnership was not for bona fide or adequate consideration as there were no significant nontax purposes and that the decedent expressly or implicitly retained the right to possess the transferred property as well as controlled which person would enjoy the transferred property. The Court included all the assets in the gross estate of the decedent under section 2036 of the Internal Revenue Code.

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