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Business Valuation LLC Phone: 304 692 1385 Fax :304 599 7250 Email: bizvaluer@valuellc.com |
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Active and Passive Appreciation
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Family Limited Partnerships Family limited partnership (FLP) is becoming an increasingly popular device for creating substantial valuation discounts for estate and gift tax purposes. FLP is a non-taxable entity. The income, gains, losses, and deductions pass through to each individual partner's tax return. A family limited partnership provides maximum flexibility in protecting control, current distributions to partners, and minimizing estate taxes. The reduced liquidity for FLP interests causes the appraised value of an individual FLP interest to be lower than the pro-rated value of the underlying assets contributed to the FLP. Gifting the FLP interest at such reduced value can generate substantial estate/gift taxes savings. For such a plan to succeed, the IRS must be convinced that the family limited partnership has a real business purpose. For example, calling your home a business does not make it one, but if you own rental real estate, there can be significant estate tax advantages to creating a limited partnership for it, and transferring minority interests to future inheritors Generally the FLP can be formed without creating any taxable income or gain to the current owner of the assets. A taxpayer who owns real property and other assets creates an FLP where he or she is a general and limited partner and family members are limited partners. The real property and other assets are transferred to the partnership, without triggering taxes, and in the future, the limited partnership interests can be transferred by gift or sale to other family members. The general partner retains control of the assets based on the provisions of the partnership agreement and makes periodic distributions to limited partners. In most FLPs the ability to transfer individual interests is restricted but gifts of interests between family members are allowed to take place. In addition, family members may be permitted to purchase the interests of other family members. Your estate planning clients may benefit from suitable FLP structure. Business Valuation LLC can help to develop valuation models and illustrate the impact of different planning strategies on the estate plans you develop for your clients. contact us.
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