Family Limited Partnerships

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FLP Article

Family limited partnerships (and similar entities such as family limited liability companies) are recognized by attorneys, accountants and other professionals as an outstanding tool for estate planning, asset preservation and charitable giving. The FLP device takes advantage of a well-known partnership attribute: assets held by a partnership are worth less (often 30%-40% less) than otherwise due to the partnership interest's lack of control and marketability. Small wonder the FLP has become one of the most popular tools used to transfer assets from one generation to another.

FLPs have an "Achilles' heel" - a potentially fatal flaw. Unless the gift or sale is made pursuant to an expert appraisal quantifying and justifying the discount, the IRS can successfully challenge it. Therefore make sure that an experienced appraiser values the FLP in a manner complying with Revenue Ruling 59-60 . (Since its promulgation in 1959, Rev. Rul. 59-60 remains one of the most important guides for professional appraisers for estate and gift tax purposes.)

How often should an FLP's valuation be updated? Technically the donor should have a current appraisal each time a gift is made. As a practical matter most people update their valuations on a less frequent basis (every 2 nd , 3 rd or 4 th year). However if the FLP's assets change significantly (for example, if a portfolio of Treasury bills are sold and the proceeds used to buy raw land in Indonesia ), it is prudent to update the valuation as the discount will have changed.