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A family partnership may be used to shift both the income tax burden and the appreciation of assets from parents to children or other family members. However, the benefit of income shifting to children under age 14 is limited, since unearned income in excess of $1,500 (as indexed for 2001) generally will be taxed at the parents' income tax rate. It is also possible to transfer business interests to children and retain control by retaining the general partnership interest. It is even possible to receive a discount for gift tax valuation purposes if the partnership interest transferred is a minority interest. Discounts also can apply due to the lack of marketability of partnerships. Any appreciation on transferred interests should not be included in the transferor's estate, assuming a valid partnership has been established.
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