A partnership may be transferred into a charitable remainder trust. The three rules generally applicable are the following:
1. There is no debt.
2. There is no active business income.
3. There is a friendly general partner.
This property passes all three tests. It would be possible to create a unitrust for Mother and unitrust for the daughters and to transfer their interests into those unitrusts. In this case, Mother decided to create a unitrust with her 40% interest that would pay to herself for life and then distribute one-third of the income to each daughter for life. With their 20% interests, the daughters each decided to fund unitrusts for themselves and their spouses. Thus, there were four unitrusts created.
A university was willing to serve as trustee. However, there were environmental risks because of the meat packing activities. There has been environmental remediation on the property and the family believes the property is fine. However, the university suggested that the Mother serve as the initial trustee of all trusts. Her name is already on the property as general partner and she does not increase her liability risk by serving as trustee of the trusts.
All of the partnership interests are transferred into the respective unitrusts with Mother as trustee. The property may then be listed for sale. After the property is sold, Mother will resign and the university may then accept the position of successor trustee.
The net result - each of the four partners receives a charitable income tax deduction, bypasses capital gain on the property transferred and receives income for life. This plan is certainly a wonderful way to receive the maximum meatpacking benefit.
