Estate Planning: Limiting Tax Liability When Transferring a Partnership

Published on: Nov 02, 2023 by Richard Kollauf - JD, CPA, CFP, AEP

Updated on: November 11, 2024

Transferring a partnership to heirs requires careful planning to make sure the legacy is passed on, but not a hefty tax burden.

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The first thing to consider in deciding when to transfer a partnership is if it has a negative capital basis. This means the partner has received more distributions than they've contributed. If the current owner of the partnership interest has a negative capital balance, that could cause tax consequences for the heirs.

It is usually preferable to hold onto the partnership interest until death. This allows the heirs to potentially sell it tax-free with a “stepped-up” value. The stepped-up basis rule allows heirs to inherit the asset at its current market value, not the original cost basis of the partnership. This can slash future capital gains taxes if the heir decides to sell.

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Transferring a business partnership to heirs isn’t just a financial decision – it is also part of your legacy. Being thoughtful about strategic estate planning can help ensure that your legacy continues without undue tax burdens.

To learn more about tax liabilities when transferring a partnership, please contact Richard Kollauf, a Principal at SVA Certified Public Accountants.

© 2023 SVA Certified Public Accountants

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Richard is a Principal for SVA Certified Public Accountants and has more than 35 years of experience working in financial, accounting, and legal operations. Richard’s expertise in the multi-faceted financial environment includes business succession planning, tax, investments, finance, mergers and acquisitions, estate planning, and trust administration. He also has experience in estate planning and distribution for complex operational and investment multi-state businesses. Richard provides income tax consulting services to closely-held and family-owned businesses, as well as high net worth individuals.

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