Ultimately it is about what money can the trustee obtain from the
interest. Valuation discount really does not matter if the trustee can
obtain funds above the exempt amount either through distributions or
sale. The higher the liquidation value, the more likely the trustee's
scrutiny. Is there a clause restricting sale rights by the limited
partners? A few other things to think about are first what is the
expiration date of the limited partnership? If soon, it has more value
than if later. Second, if there is a restriction on sale clause
limited sales to other limited partners or only with the general
partner's permission, would another of the limited partners or the
partnership itself want to purchase the pc interest for a relative (no
pun intended) song from the Chapter 7 trustee if value existed above
the exempt amount? Third, are there any financial irregularities in
the administration of the general partnership that support an action
for dissolution by the Chapter 7 trustee on behalf of the bk estate?
I recently was involved in a case where the debtor had an 8%
interest in FLP with strict sale restrictions that required approval
of the General Partner unless sold to another limited partner. Client
tried to sell, but since she was not on good terms with the General
Partner, the answer was no and none of the other family members wanted
to buy her interest. Chapter 7 was her last resort. Chapter 7 trustee
delved into the partnership records, took a Rule 2004 exam of the GP
and then filed an adversary proceeding seeking to dissolve the limited
partnership based on California law alleging improprieties by the GP.
The GP strongly refuted the allegations, but rather than spend money
to fight the adversary proceeding, the GP made the smart business
decision and agreed for the partnership to buy the debtor's 8%
interest for not more than 1/3 of what the debtor believed the
liquidation value. Thus the sale restriction clause was used as a
hammer to enrich the other limited partners at the debtor's expense,
while the Chapter 7 estate obtained a significant chunk it never would
have obtained if all members of the FLP wanted to protect the debtor.
Without the trustee's aggressive action in filing the Adversary, the
GP probably would never have thought of offering to buy the debtor's
interest at a huge discount.
Mark T. Jessee
Law Offices of Mark T. Jessee
"A Debt Relief Agency"
50 W. Hillcrest Drive, Suite 200
Thousand Oaks, CA 91360
(805) 497-5868
On Tue 2/03/10 2:20 PM , "Steven B. Lever"
sblever@leverlaw.com
sent:
This is not a very marketable asset in most cases. Only if there is
a consistent cash cow in the partnership would the Trustee likely be
interested in it. If it is merely a holding vehicle for assets that
dont produce much cash it would be a better bet that trustee will
pass. Small minority owners often dont know what is in the LP, but
have the PC look into it. Also look into the partnership
documentation for both due diligence reasons and the trustee is likely
to ask for it. Many partnership agreements have provisions that
protect the partnership from having new partner interests forced on
them.
Valuation for gift purposes is done by appraisal. Valuation for
trustee purposes is for actual sale, which may or may not be
practicable.
Law Offices of Steven B. Lever
FROM:
cdcbaa@yahoogroups.com [mailto:
cdcbaa@yahoogroups.com] ON
BEHALF OF Gerry McNally
SENT: Tuesday, March 02, 2010 1:26 PM
TO:
cdcbaa@yahoogroups.com
SUBJECT: [cdcbaa] Family Limited Partnerships
Dear Listmates,
PC was gifted years ago with a 9% interest in a family limited
partnership. Assuming the liquidation value of the partnership
asset(s), less a (37% discount for lack of control, and marketability)
is more than PC can exempt, how do the Ch7 trustees treat these FLP
interests. Do they value them on liquidation value or on
distributions.
Gerald McNally
McNally & Associates, P.C.
517 E. Wilson Ave. #104
Glendale, CA 91206
818-507-5100
Links:
[1] mailto:
cdcbaa@yahoogroups.com?subjectRE: [cdcbaa] Family Limited
Partnerships
[2]
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