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The Partnership
1. Formation of LKHP
Decedent and Hillgren formed LKHP with an effective date of
January 1, 1997. The term of the partnership was set for
29 years. Walsworth represented both decedent and Hillgren in
the formation of the partnership. Decedent held a 99.95-percent
capital interest and a 75-percent profit interest in LKHP.
Decedent gave Hillgren a .05-percent capital interest and a
25-percent profit interest in the partnership. The term “profit
interest” was defined in the partnership agreement as “a
partnership interest other than a capital interest * * * which
will give rise to a partnership capital account * * * only if and
when there is future economic income” (25-percent profit
interest). The partnership agreement also provided Hillgren with
25 percent of the amount, if any, by which the partnership
profits from operations in any year exceeded profits from
operations realized by decedent in 1996 from the properties
transferred (25-percent operational interest). The 25-percent
operational interest was compensation to Hillgren for time spent
in the management of LKHP. Decedent made no other gifts of
partnership interests.
Decedent contributed seven properties (the LKHP properties)
to LKHP, as described in exhibit B to the partnership agreement.
Hillgren did not contribute any property to LKHP. The seven LKHP
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