Navigating the Minefields of Estate Planning with Carried Interest


Estate planning with carried interest can result in huge savings for taxpayers, but navigating this complex area of planning isn’t always easy.

N. Todd Angkatavanich, David A. Stein, and Andrew Haave of Withers Bergman LLP authored a Bloomberg BNA portfolio on the topic that walks readers through both the benefits and risks of carried interest planning.

As the authors wrote, the value of a carried interest—the portion of an investment fund’s returns that is paid to investment managers as compensation—has the ability to appreciate greatly over time.

“In a typical fund where, for instance, a 1% capital contribution by the fund general partner may entitle it to a 20% carried interest, there is great potential for the value of the general partner interest to grow exponentially,” the authors wrote. Using estate planning strategies to transfer those assets to beneficiaries before that appreciation occurs—thus “freezing” the value of the assets at the time of the transfer—can result in significant tax savings. 

Allyson Versprille of the Daily Tax Report spoke with Angkatavanich and Stein about what practitioners need to know when it comes to navigating carried interest planning under tax code Section 2701. Section “2701 has a lot of moving pieces and there are different layers of complexity,” Angkatavanich said.

The podcast also explores ways to avoid pitfalls under Section 2701 and helps practitioners understand the impact of potential tax reform changes.