FLPs: Combining Control, Discounting, and Tax Efficiency
A Family Limited Partnership (FLP) is both a management structure and a tax strategy. It allows you to:
- Consolidate family business or investment holdings.
- Transfer limited partnership interests to family members at discounted values.
- Retain control while moving future appreciation out of your estate.
Structure
- General Partners. Often you (and/or spouse) retain management control.
- Limited Partners. Children, trusts, or other family entities; no management authority.
Valuation Discounts
- Lack of Control. Limited partners can’t dictate operations.
- Lack of Marketability. Interests aren’t easily sold.
- Combined discounts often range from 20 to 35%.
Example
You transfer $20M in real estate into an FLP:
- Give 40% LP interest to an irrevocable trust for heirs.
- Appraiser applies 30% combined discount: $8M LP interest valued at $5.6M for gift tax purposes.
- Uses less exemption, moves more value out of the estate.
Non-Tax Benefits
- Centralized management of complex assets.
- Protection from creditors and divorce (to the extent allowed by state law).
-
Gradual transition of family involvement.