Family Limited Partnerships (FLP)

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FLPs are excellent tools for long-term estate planning, even in light of EGTRRA, because they allow you to leverage gifts you make. This type of partnership converts an estate plan into a family business, allowing you to remain actively involved throughout your lifetime. FLPs are special because they allow you to give assets to your children (and grandchildren) without giving up control of those assets.

Here's how it works: First you select the type of assets (such as cash, stocks, real estate) and the amount (based on the gift tax rules) and place them into the FLP. Next you give some or all of the limited partnership interests to your children and grandchildren.

The limited partnership interests give your family members ownership interests in the partnership, but no right to control its activities. Control remains with the small percentage (at least 1%) of partnership interests known as general partnership interests, of which you retain ownership. The result is that you can reduce your taxable estate by giving away assets, while retaining control of the underlying assets and the income they produce.

Because the limited partners lack any control, these interests can often be valued at a discount.

Legislation has been proposed that would eliminate this valuation discount for certain family partnerships, but to date, nothing has come of it. Please seek professional advice about how this or any other legislation might affect the outcome when you create an FLP or make a gift of FLP interests. In any case, when making a gift of an FLP interest, obtaining a formal valuation is generally advisable to establish the value of the underlying assets and the amount of the discount, if any is permitted.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.