Sunday, April 06, 2014

LLC PREFERRED INTEREST QUALIFIES FOR MARITAL DEDUCTION

In a recent private letter ruling, the question was raised whether an LLC interest that received a preferred return with additional LLC cash flow going to other common interests could qualify for the marital deduction if funded into a QTIP trust.

The IRS ruled that the property did qualify for the marital deduction. However, this was based on certain elements being present – absent their presence the ruling may not have been issued. These key elements were:

1. The QTIP trust itself had all the Section 2056(b)(7) requisite elements, including required income distributions and limits on distributions to persons other than the surviving spouse.

2. The preferred units provided for an eight percent return on the aggregate face value, payable no less often than annually.

3. The preferred units cannot be redeemed for less than the greater of their face value or fair market value.

4. The rights of the preferred units cannot be altered by the holders of the common units.

5. The sale of preferred units is not unreasonably restricted.

PLR 201410011 (3/7/2014)

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