Family Limited Partnerships, The IRS, and Your Estate Planning
By: David M. Frees III, Esq.
Many affluent families use family limited partnerships as part of their business succession planning, business continuity plans, and as a legitimate part of estate planning.
Limited partnerships allow a person or family own owns real estate, a family business, or even concentrated positions of publicly traded stock companies to accomplish a number of important things. By using a FLP (Family Limited Partnership) the family can divide the ownership of the company or assets from the management. So, a senior generation can continue to operate the business and mentor the next generation while allowing growth in the value of the company to occur in the children’s names.
The interests in FLPs are easy to divide and different family members can own different fractions of the total asset base or business.
The FLP can help to prevent a dissolution of the company upon the death of a senior family member and can provide for continuity of management.
And, when done properly, and when carefully documented, the FLP structure can result in a diminished value of the gift to children or grandchildren.
FLPs can be used in conjunction with both trusts created during your lifetime, or under a will and can also offer some significant asset protection.
The new York Times recently published a great overview of the pros (some of the benefits mentioned above), the cons (IRS scrutiny for one), and what to do to make sure that the FLP works as intended.