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.
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