Family Limited Partnership (FLP)

Caution: This is a difficult area of law subject to I.R. S. challenges if not done properly. Additionally, in very difficult cases, an advanced ruling from I. R. S. would be advisable.

How do you transfer the assets to your family members and enjoy tax benefits at the same time? Generally, a revenue producing property is transferred into an FLP. Typically, parents will transfer the property into the FLP and become general partners. As such they are involved in day to day operation and management of FLP. The parents then transfer limited partnership interests to their children. This transfer may be subject to gift tax, however, with available discounts, this liability may be greatly reduced. The discounts usually sought are based on lack of control (by limited partners), lack of marketability (FLP shares are not freely traded), fractional share discount (partial interest in real property is worth less than an undivided interest) and built in capital gains discount (capital gains taxes on highly appreciated property reduce the value of the transferred property when compared to property that doesn’t owe such taxes). The total discount is typically in the 20% - 30% range.