What is the impact of transferring limited partnership interests over time to donees?

Transferring limited partnership interests over time to donees generally removes the value of those interests from the gross estate of the transferor. This is because when a donor transfers ownership of partnership interests to another person, the interests no longer belong to the donor at the time of their death. Instead, they belong to the donee.

This transfer can also have implications regarding gift tax, as the value of the interests transferred may need to be reported as gifts on the donor's tax return, depending on their value and the annual exclusion limits. However, the key point is that such transfers effectively reduce the value of the donor's estate by the amount of the interests given away.

In this scenario, the transfer of the limited partnership interests is a donee transaction, which suggests that ownership and thus the economic benefit from those interests will now be with the recipient. Therefore, the correct interpretation is that it removes the value of the property from the gross estate, illustrating how effective estate planning can involve strategic transfers of assets.