JK Lasser's New Rules for Estate, Retirement, and Tax Planning, 6th Edition
by Stewart H. Welch III, J. Winston Busby
CHAPTER 13Family Limited Partnerships
The family limited partnership (FLP) and the family limited liability company (FLLC) have become common estate‐planning techniques. In practice today, most “family limited partnerships” are actually limited liability companies that are taxed as partnerships for federal and state income tax purposes. As used in this chapter, FLP and FLLC are often used interchangeably. Properly structured, they can be a part of your wealth preservation strategy. The FLP and FLLC should be considered tools in your defense against estate taxes.
Historically, the use of FLPs or FLLCs have been disfavored by the IRS as a mechanism to “manufacture” valuation discounts. In August of 2016, proposed regulations were introduced under Code Section 2704 that would have likely eliminated many of the current tax benefits for FLPs and FLLCs. The proposed regulations were heavily critiqued and criticized. Treasury withdrew the proposed regulations in 2017.
General Structure of the Family Limited Partnership
With an FLP, you establish a limited partnership agreement and then transfer title to certain property from your individual name to the name of the partnership. This transfer is a nontaxable event if the original property owners are the same as the original partners in the same proportion that they formerly owned the property outright. Typically, you (and your spouse) are the general partner(s), and your children and/or grandchildren are limited partners. As with any ...