Here are both tax and non-tax reasons to consider the use of the Family Limited Partnership. The non-tax reasons include income shifting, protecting assets from creditors, and the ability to transfer a business or other assets to other family members while still retaining control. The tax advantages usually include:
(i) Obtaining valuation discounts; and
(ii) Reducing the senior family member’s assets for estate planning purposes, even though the senior family member retains control.
Basic Summary of FLPs
In its most basic form, a donor contributes assets to a Family Limited Partnership (FLP) and receives both general and limited partnership interests in the FLP. General partnership interests have most of the power in an FLP and control the corporation while the majority of the initial capital is assigned to the limited partnership interest. The donor can then gift the limited partnership interest to family members. This allows the donor to retain control of all the assets, but potentially allows the donor to save on taxes because of the valuation discount assigned to the limited partnership interest. The idea is that because those possessing the limited partnership interest do not have complete control over the assets, a willing buyer would not pay full face value for the interest, so the donor would only pay tax on the discounted value of the limited partnership interest rather than on the entire monetary value of the underlying assets.
These materials are intended to assist readers as a learning aid but do not constitute legal advice and, given their purpose, may omit discussion of exceptions, qualifications, or other relevant information that may affect their utility in any planning situation. Diligent effort was made to insure the accuracy of these materials but Attorney Silberstein assumes no responsibility for any reader’s reliance on them and encourages all readers to verify all items by reviewing all original sources before applying them. The reader should consider all tax and other consequences of any planning technique discussed.
Last updated January 2011