Interview with
Steven J. Oshins, Esq. on
Nevada Restricted LLC/LP
Phil Kavesh, of the Ultimate Estate Planner, on behalf of The Wealth Strategies Journal, interviewed Steve J. Oshins, Esq., re Nevada Restricted LLCs and LPs.
Steven J. Oshins, Esq. is a nationally renowned estate planning and asset protection attorney based in Las Vegas, Nevada, with clients all over the United States. In 2009, Steve authored a law in Nevada that creates two new forms of business entities not available in any other state. The new entities are called Restricted Limited Liability Companies and Restricted Limited Partnerships. The law was effective October 1, 2009.
Phil Kavesh: In order to put the specific benefit of Restricted LLCs and LPs into the proper context, please start by explaining valuation discounts in general.
Steve Oshins: When planning for a client with a taxable estate, the estate planner often creates an LLC or LP in order for the client to transfer non-voting, minority or limited partnership interests to trusts for the client's descendants while retaining the voting control. The transferred interest is subject to a valuation discount to reflect the interest's lack of voting control and to recognize that there is no ready market to easily sell the interest to a third party.
The valuation discount enables the client to transfer a significant amount of wealth out of his or her estate by leveraging the $5 million gift tax exemption. The transfers are generally made by gift or installment sale to an irrevocable trust for the transferor's descendants or spouse and descendants.
Phil Kavesh: How is the valuation discount determined?
Steve Oshins: The business valuation appraiser reviews the provisions in the operating agreement or limited partnership agreement to determine the restrictions that would determine the appropriate discount. However, any restrictions on liquidation that are more restrictive than the applicable state default law are disregarded for valuation purposes and the applicable state default law is substituted in place of any such provisions, thus reducing the valuation discount. This happens pursuant to IRC §2704(b) and the Treasury Regulations related thereto.
Phil Kavesh: What does the Restricted LLC and Restricted LP law do to increase the valuation discount?
Steve Oshins: My idea in writing the law was to raise the valuation discount ceiling by increasing the applicable state law restriction in order to create a much higher ceiling with which the estate planners can design their LLC and LPs. I did this by drafting a Nevada statute creating a lock-up of all of the entity's assets for a ten-year period.
Keep in mind that this only creates a default provision. The draftsman can instead choose to lock the assets up for five years, three years, one year or whatever other period of time the draftsman selects as long as it doesn't exceed ten years. Alternatively, the draftsman might choose to restrict distributions except for any income or except for a certain percent of the value of the underlying assets or of enough to pay the members' income tax liability or whatever other creative drafting decision suits the client's needs.
Phil Kavesh: Do you think other states will follow suit and enact similar Restricted LLC and Restricted LP statutes?
Steve Oshins: I expect certain, more proactive states to move forward with Restricted LLC and LP statutes. They'll have to do so in order to stop Nevada from having a monopoly on all valuation discount transfers. It will be interesting to see how the other states react to this over the next few years.
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