A new law in Nevada could benefit people all over the country who want to reduce estate taxes and protect assets from creditors. The law allows anyone in the U.S. to create a “restricted” limited partnership or limited liability company in Nevada.
In general, putting assets into an LP or LLC can be a good idea. You can then give membership units, or shares, in the LP or LLC to your heirs each year. Ordinarily, you can’t give anyone more than $13,000 a year without incurring gift tax. But because the shares are worth less than an equivalent amount of the underlying assets, each year you can give your heirs shares that represent considerably more than $13,000 worth of assets.
Why are the shares worth less? Their value is discounted for two reasons. One, the value of a share is worth less than the value of the assets because it’s a lot harder to sell a share in a partnership than it is to sell underlying assets such as stocks or real estate. And two, if your heirs are minority shareholders, they have no control over the handling of the assets or their distribution to shareholders.
In other words, putting assets into an LP or LLC can result in a considerably discounted value for tax purposes.
Here’s where the Nevada law comes in. The law says you can set up an LP or LLC and require that no distributions will be made for up to 10 years. (That’s far longer than any other state allows.)
If no distributions can be made for many years, then the value of the shares will be discounted even further – which means you can give away even more shares each year without incurring a tax.
Another advantage of tying up the assets for up to 10 years is that it protects them from creditors. It’s much harder for creditors to demand that an LP or LLC make a distribution to satisfy a debt if doing so is contrary to state law.
If you already have an LP or LLC in another state, the law allows you to move it to Nevada to take advantage of the restrictions.
The law took effect on October 1, 2009. Because the law is so new, there are a few questions and it’s not absolutely clear that it will work exactly as planned. But as with many things in Nevada, it’s a gamble that could pay off big.