 |  |  |  |  |
 |
 |
 |
 |
 |
|
|
|
|
|
|
B
F
A
R
"FAME" is my acronym for Family Asset Management Entities. Normally, these are Family Limited
Partnerships or Family Limited Liability Companies, which for short in our discussion we will call a FAME.
A FAME is a useful estate planning device, for larger estates with assets significantly exceeding lifetime
exemptions (currently $675,000 for 2000 and 2001). The method is to wrap assets owned by the senior
generation into another entity (a FAME) with the estate planning objectives as follows:
1. Use interest in the FAME to take advantage of the annual gift tax exclusion.
2. Obtain discounts for minority interests and lack of marketability.
3. Get appreciation out of the taxable estates of the senior generation.
While the most publicity is given to the use of a FAME to obtain significant discounts for gift or estate tax
purposes, there are other business financial and management reasons for considering a FAME in family
asset planning. There are at least five strong non-tax reasons for using a FAME in sophisticated estate plans:
1. Retaining senior generation control over assets. The senior generation can continue managing the
assets and/or property while bringing in family members as minority owners while the younger generation
learns to mange money and property as participants on whatever level the senior generation so chooses. It
also has the advantage of not giving the younger generation direct access to liquid assets which might
reduce their incentive to work.
2. Management can be retained in experienced hands, or delegated at reduced costs, depending on asset
composition of the FAME.
3. Flexibility is enhanced by a FAME because the operating agreement or partnership agreement can be
amended. Interests can be reduced gradually without giving up control, which may be necessary in an
Irrevocable Trust.
4. Asset protection can be an important consideration and a reason for using a FAME inasmuch as
creditors of a particular family member will have a difficult, if not impossible, time accessing the family
members’ interest in the FAME (the underlying asset) and may be able to attach only a non-participatory
member or partnership interest. This may be of significance not only for business creditors, but for spousal
separation.
5. Reduction of administrative costs can be a strong factor where there is a family business or real estate
investments involved in the asset mix.
Some of the caveats which come into play in setting up and implementing a FAME will be discussed in this
newsletter and the succeeding one, because of the strong interest in this topic.
A. The entity must be chosen carefully with a view toward family objectives, asset composition and
characteristics of state law.
B. The FAME must have business reality to withstand an IRS challenge. Legal and financial procedures
must be strictly followed to place the FAME on a solid foundation.
C. The business purposes and financial objectives of the entity should be well documented.
D. Time is your ally in achieving the estate planning and other family objectives. The IRS is almost certain to
challenge death bed arrangements which due to haste or lack of professional advise may appear as shams.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| March 2000 "FAME" AND FORTUNE by James R. Modrall III |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |