What is the role of limited partnerships in estate planning?
Posted on Aug 22, 2016 3:20pm PDT
One role is that it offers important estate tax benefits. FLP interests
are subject to a discounted valuation by the IRS. An FLP that owns an
asset is considered to have less value than the sum of its underlying
assets. First, the IRS applies a
lack of marketability discount, since your FLP interest is not readily marketable; its value
is reduced for tax purposes. There’s little market for FLP interests
when the other partners are family members. If you own less than 50 percent
of the FLP, the IRS then also applies the
minority ownership discount to your FLP interest because there’s little market for
FLP interests which others control. The result is that the IRS may value
your FLP interest 15 to 40 percent below your percentage fair market value
share. This can translate into a significant estate tax savings if you
have a larger estate. That’s one reason we use FLPs to own LLCs,
corporations and other assets. The FLP can layer your creditor protection
and also decrease your estate taxes.