Taking a closer look at the family limited partnership

On behalf of Scaringi Law posted in Estate Planning on Monday, August 29, 2016.

Ever heard of a Family Limited Partnership? As its name suggests, a FLP is a type of partnership. However, it’s used more in estate planning than in the business world.

The reason for that has to do with how the FLP is structured. Partners are either general or limited, and only general partners have management and control over the FLP’s assets.

The key benefit of a FLP is the valuation discount it provides to any assets transferred into the partnership. The rationale for that discount is that a FLP is less marketable to outside investors than other types of partnership. Indeed, why would an investor buy into a partnership where he or she would not have voting rights or control over the FLP’s management? For that reason, the Internal Revenue Service has historically offered a discount on the valuation of the FLP’s assets. The discount often amount to 25 percent or more.

Any individual who is concerned about minimizing his or her taxable estate would be well served by a consultation with an estate planning law firm. In the specific example of a FLP, assets in the partnership can utilize the discount. The next step would be to transfer those discounted assets to loved ones via a trust.

If this sounds too good to be true, you might be right. Specifically, the U.S. Treasury Department has proposed regulations that, if finalized, would limit or perhaps even end the ability of individuals to benefit from the FLP. Of course, the proposed regulations must go through a 90-day comment period, followed by a hearing. Even so, individuals interested in this powerful estate-planning tool should contact an attorney to learn more, while it is still available.


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