The New Nevada Restricted LLC and LP Legislation: A “Why?” and “How to?” Guide
By Steven J. Oshins

Nevada Senate Bill 350 was signed into law by the Governor of Nevada on May 29, 2009 and is effective October 1, 2009. This Bill was sponsored by the Business Law Section of the State Bar of Nevada. A portion of this Bill creating a new form of business entity called a Restricted LLC and Restricted LP (jointly referred to herein as “Restricted Entity” or “Restricted Entities”) was drafted by the author of this article with the review and approval of the Business Law Section. The author of this article wishes to thank the members of the Business Law Section for their hard work and guidance and for allowing the Restricted Entity language to be a part of their Bill.

Valuation discounts
Many advanced gift and generation-skipping transfer tax leveraging techniques rely on valuation discounts to reduce the fair market value of assets in order to transfer those assets out of a wealthy person’s estate with little or no tax. Transfer tax strategies utilizing family limited liability companies and family limited partnerships work well in large part because of the ability to discount the transferred interests to reflect the fact that the interests are less valuable than pro rata value because of the willing buyer/willing seller test promulgated by the Internal Revenue Code.
Under Internal Revenue Code §2704(b), and Treasury Regulations §25.2704-2(a), if an interest in an entity is transferred to or for the benefit of a member of the transferor’s family, any applicable restriction is disregarded in valuing the transferred interest. Treasury Regulations §25.2704-2(b) defines an applicable restriction as a limitation on the ability to liquidate the entity (in whole or in part) that is more restrictive than the limitations that would apply under the state law generally applicable to the entity in the absence of the restriction. Until now, all states have been limited to some form of the Uniform Laws. A number of states, including Nevada, have had favorable default restrictions that allow for slightly higher valuation discounts than the discounts that can be obtained using other states’ laws. With the passage of SB 350, Nevada has now separated its valuation discount opportunities significantly in comparison to all other states.

New ceiling under IRC §2704(b)
The difference between the Restricted Entities and regular LLCs and LPs is that the Restricted Entities have a default statute locking in the entity’s underlying assets for a ten-year period. This creates a new significantly higher ceiling on valuation discounts that is not available in any other state.
This does not mean that the drafting attorney must lock the underlying assets in for the entire ten years. Rather, the Restricted Entity might be drafted to lock the underlying assets in for a lesser number of years. Alternatively, the Restricted Entity might be drafted to lock the underlying assets in for ten years but with the discretionary right to distribute up to a small percent or dollar amount of the assets per year or to distribute an amount not exceeding the underlying income. In other words, the possibilities are endless. The creative estate planner will design the Restricted Entity around the contemplated transaction.

What the appraisers say
The author of this article asked appraisers at two different business valuation appraisal firms (“Appraiser #1” and “Appraiser #2”, respectively) to each independently prepare a memorandum responding to certain hypothetical questions posed by the author of this article. Appraiser #1 is Steve Nicolatus ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ) and Peter Agrapides ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ), both of Houlihan Valuation Advisors, in Las Vegas, Nevada and Salt Lake City, Utah. Appraiser #2 is Don Parker ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ) of Gryphon Valuation Consultants of Las Vegas, Nevada. These hypotheticals have been previously published in Steve Oshins, “FLASH – Nevada Restricted LLC and LP Laws Enacted,” LISI Estate Planning Newsletter #1471, dated May 30, 2009.
The questions were asked for the specific purpose of obtaining an estimate of the additional valuation discounts that should be available using the Restricted Entities. The appraisers were specifically told that the author may cite portions of the responses in articles but with the limitation that these are only estimates and that they may not necessarily be followed in an actual appraisal requiring more extensive research and an application to actual facts.

Hypothical #1: The Restricted Entity disallows any Member/Partner distributions for 10 years. Appraiser #1 estimated an additional 10% to 30%+ discount on top of the discount that would be obtained without this additional provision. Appraiser #2 estimated an additional 15% to 35% discount on top of the discount that would be obtained without this additional provision.

Hypothical #2: The Restricted Entity disallows any Member/Partner distributions for 5 years. Appraiser #1 estimated an additional 5% to 20%+ discount on top of the discount that would be obtained without this additional provision. Appraiser #2 estimated an additional 10% to 25% discount on top of the discount that would be obtained without this additional provision.

Hypothical #3: The Restricted Entity disallows any Member/Partner distributions for one year. Appraiser #1 estimated an additional 3% to 10% discount on top of the discount that would be obtained without this additional provision. Appraiser #2 estimated an additional 3% to 10% discount on top of the discount that would be obtained without this additional provision.

Hypothical #4: The Restricted Entity disallows any Member/Partner distributions ranging from 1 to 10 years, except to allow all income/growth beyond the capital contributions to be distributed. Appraiser #1 estimated an additional 3% discount for a 1-year restriction to 10% for a 10-year restriction on top of the discount that would be obtained without this additional provision. Appraiser #2 estimated an additional 2% discount for a 1-year restriction to 15% for a 10-year restriction on top of the discount that would be obtained without this additional provision.

Hypothical #5: The Restricted Entity disallows any Member/Partner distributions ranging from 1 to 10 years, except to allow an amount equal to the highest federal/state income tax to be distributed to eliminate the taxation on phantom income. Appraiser #1 estimated an additional 2% discount for a 1-year restriction to 10% for a 10-year restriction on top of the discount that would be obtained without this additional provision. Appraiser #2 estimated an additional 3% discount for a 1-year restriction to 15% for a 10-year restriction on top of the discount that would be obtained without this additional provision.

How to opt into the restricted entity
Creating a Restricted Entity is simple. The statute was written with the goal of making it as easy as possible on the draftsman to elect into the Restricted Entity rules. The statute simply requires the draftsman to elect in the Articles of Organization or the Certificate of Limited Partnership to have the entity treated as a Restricted Entity.
If the Articles of Organization or Certificate of Limited Partnership states nothing more than that the Restricted Entity election is being made then the ten-year lock-in period will apply. Therefore, the draftsman should add additional language to the Articles of Organization or Certificate of Limited Partnership stating exactly to what extent the draftsman intends to add an additional restriction within the ten-year ceiling. An additional sheet of paper should be submitted along with the Articles of Organization or Certificate of Limited Partnership. Therefore, there is plenty of room to provide the specific restrictions.
In order to maintain consistency, the draftsman should draft identical additional restrictions into the operating agreement or limited partnership agreement. This will avoid a situation where the operating agreement or limited partnership agreement is inconsistent with the Articles of Organization or Certificate of Limited Partnership.

The Green Book
The Treasury Department’s “Green Book” was released on May 11, 2009. One of the proposals in the Green Book seeks to modify the application of IRC §2704(b) such that disregarded restrictions would include restrictions on liquidation of an interest that are measured against standards prescribed in the Treasury Regulations rather than against default state law.
There have been a number of other recent proposals that attempt to curb valuation discounts. It is likely that at some point there will be some changes to our valuation system.
However, the willing buyer/willing seller definition found in the estate and gift tax Treasury Regulations would be disrupted significantly with any modifications that do not reflect real restrictions on business interests. Because of this, there are a number of large groups lobbying against any significant modifications to these laws.

Steven J. Oshins is an estate planning and asset protection attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He authored the Nevada Restricted LLC and LP laws in the 2009 legislative session. Steve can be reached at 702-341-6000, ext. 2 or at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it His Web site is www.oshins.com.

The Constitutionality of Nevada’s Domestic Partnership Legislation
By Danielle L. Blackham 

Both before and after the 2008 election, California’s Proposition 8, regarding gay marriage, received attention from the entire nation. Prop 8 was everywhere, in newspapers, magazines, television, and online. During a drive to Los Angeles, I saw countless bumper stickers advising me of the owner’s stance on Prop 8. A Miss Universe contestant may have lost her crown because of her beliefs on Prop 8 and gay marriage. Prop 8 even made it into an episode of Kathy Griffin’s My Life on the D-List. The national media coverage reignited the discussion on the topic of gay marriage versus domestic partnerships.
Unlike California, the definition of marriage in Nevada was settled in 2002 through an amendment to the Nevada Constitution. Seven years later, with considerably less fanfare than Prop 8, the Nevada legislature passed a bill to allow for domestic partnerships. As of October 1, 2009, couples in Nevada, regardless of their sexual orientation, may register as domestic partners with the Secretary of State. This legislation is a result of Senate Bill 283, which passed, was vetoed by Governor Gibbons, and passed again by the narrowest possible margin to override the veto. Does SB 283, which allows for same sex partnerships, conflict with the Nevada Constitution’s definition of marriage?

The definition of marriage in Nevada
The definition of marriage was left to Nevada voters. In 2000, 69.6 percent of Nevada voters voted “yes” on Question 2, which asked, “[s]hall the Nevada Constitution be amended to provide that: ‘Only a marriage between a male and female person shall be recognized and given effect in this state.’” In 2002, the question returned to the ballot and 67.1 percent of Nevadans voted for the Constitutional change. As a result, Section 21 of Article 1 of the Nevada Constitution now reads, “[o]nly a marriage between a male and female person shall be recognized and given effect in this state.” This amendment bans gay marriage and prohibits recognition of gay marriages performed in other states.

Senate Bill 283
On March 16, 2009, Senator David Parks, D-Las Vegas, introduced SB 283, which proposed legislation that would allow the registration and dissolution of domestic partnerships. On March 27, 2009, Senator Parks testified before the Senate Committee on Commerce and Labor and described the purpose of SB 283:
This bill is about fairness. All couples should have legal protections for their relationships. These couples buy homes, have families and in other ways seek to create stable, productive lives. Legal protections for their relationships will provide basic security that other long-term committed couples have. A domestic partnership is a social contract between two persons who have chosen to share one another’s lives in an intimate and committed relationship. The bill specifically clarifies that a domestic partnership is not a marriage as defined in section 21 of Article 1 of the Nevada Constitution . . . Persons in committed relationships need protection. They are harmed when a relationship lacks legal protections. These include pension rights, tax benefits, employment benefits, lower insurance premiums and much more. Currently, Nevada denies these rights and benefits. Hearing on S.B. 283 Before the Sen. Comm. on Commerce and Labor, 2009 Leg., 75th Sess. (Mar. 27, 2009) (remarks of Sen. David R. Parks.)
SB 283 was debated at length on May 8, 2009. Individuals supporting the bill included members of the community and former dean of Boyd School of Law, Richard Morgan. Testimony indicated that other states with Defense of Marriage Amendments, like Section 21 in Nevada, have found no conflict in domestic partnership legislation. Those against the bill stated that domestic partnerships were nothing more than marriages with a different name.
SB 283 passed along party lines and was vetoed by Governor Gibbons. The Review Journal reported that legislators had not overridden a veto since 1989. At the second vote, the bill passed 14-7 and gave the legislators the two-thirds needed to override the veto.

The Nevada Domestic Partnership Act
SB 283 will be known as the Nevada Domestic Partnership Act (NDPA). In order to become domestic partners, both persons must file a signed and notarized document which states that they “have chosen to share one another’s lives in an intimate and committed relationship of mutual caring” and “desire of their own free will to enter into a domestic partnership.” To be eligible for registration, the registrants must show:
Both persons have a common residence;
Neither person is married or a member of another domestic partnership, unless it was a legal union between the same parties performed in another state;
The individuals are not related;
Both persons are 18 years of age; and
Both persons are competent to consent.
NDPA, § 6(2).
After registration, the partners “have the same rights, protections and benefits, and are subject to the same responsibilities, obligations and duties under the law . . . as are granted to and imposed upon spouses.” NDPA, § 7(a). Former domestic partners will be protected under the law, without the necessity of a cohabitation agreement or other formal documents regarding property ownership. A surviving domestic partner will have the same rights as a widow or widower. If the domestic partners have or adopt a child, they are subject to the same rights as a heterosexual couple with a child. Domestic partners are granted the same rights as married couples pertaining to community property, mutual responsibility for debt to third parties, support upon dissolution of partnerships and other rights and duties concerning the ownership of property. NDPA, § 7 (j).
The NDPA specifically states that employers are not required to provide health care benefits to a domestic partner. NDPA, § 8. An employer is not, however, prohibited from offering health care benefits to domestic partners.

Is the NDPA constitutional?
Does the NDPA violate Section 21 of Article 1 of the Nevada Constitution because it allows same-sex couples to register? Is a domestic partnership a marriage with another name?
The plain language of the statute states that a domestic partnership “is not a marriage for the purposes of Section 21 of Article 1 of the Nevada Constitution.” NDPA, § 11. To form a domestic partnership, the parties, whether homosexual or heterosexual, are required only to file the required paperwork with the Secretary of State. The NDPA requires that the parties share a common residence, which is not required to obtain a marriage license. While the legal rights between the parties are similar, the relationships are formed and treated differently under the law.
Also, a short duration partnership may be dissolved without any involvement of the courts. The partners may terminate the relationship through the Secretary of State if:
1. The partnership has been registered for five years or less;
2. There are no minor children of the relationship born/adopted before or after the partnership or if the parties have agreed to custody;
3. There is no community property or the parties have agreed to the division of any community property;
4. The parties waive the right to support or executed an agreement setting the amount; and
5. The parties agree to waive any rights for additional proceedings under NRS 125. NDPA, § 9.

Although it is argued that marriage and domestic partnerships are essentially the same, the law is clear that the two are different. The purpose of the NDPA is to ensure that non-married couples who register as domestic partners are protected by the law, without the burden of executing countless private contracts. While the rights granted in Nevada are similar, they do not give the parties the opportunity to take advantage of any federal laws that are afforded to married couples. While the NDPA gives more couples the opportunity to be recognized as partners through the law, it is still separate from the institution of marriage.

Danielle L. Blackham is an associate in the Las Vegas office of Howard & Howard. Ms. Blackham concentrates her practice in corporate litigation. She can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or (702) 257-1483.