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A family limited partnership is a limited partnership where members of a family are the general and limited partners. Generally, general partners run the partnership and limited partners are the passive owners. General partners have unlimited personal liability for partnership. An FLP is normally used to provide a minority interest discount on the assets gifted to the limited partners.Typically, the partnership is formed by the estate owner, who is the general partner, for the benefit of the children, who are usually the limited partners. However, we also allow the opposite arrangement, where the parents are the limited partners and the children are the general partners.
What is a minority discount? A minority interest discount may be applicable to the value of the asset being gifted. Generally, due to issues of control, a minority interest in an asset will be worth something less than its proportional share of the overall asset value. For example, a 1/3 interest in a partnership will not be worth 1/3 of the overall value, because someone who owns 1/3 of the partnership lacks control over any investment-related decisions. The discount can be obtained when the asset is gifted to multiple beneficiaries. The system limits any minority discount to 50% or less.
Click the Edit button to set the specifications of the Family Limited Partnership:
- The name of the Family Limited Partnership
- The year in which the transfer takes place
- To select the asset to use to fund this technique, click the ‘+’ button.
- Verify the amount listed as FMV.
- Valuation Discount Enter the discount percentage.
- Percent of Asset Gifted Enter the number of years.
- Which Units are Gifted Select if the units are Limited Partner or General Partner.
- Annual Exclusion Used Enter the amount of Annual Exclusion used.
Limitations
If listed securities or cash-type assets total 80 percent or more of the assets transferred to a FLP by the donor. This may cause an income taxable event when the transfer is made. Since this program only allows one asset to be used to fund each gifting technique, you will want to re-enter any cash-type of asset that will be used when the FLP is being formed. You may want to create a new asset which would be a combination of two existing assets. If you had $750,000 of listed securities and $250,000 of real estate, you might record a new asset titled as “securities (75%), R.E. (25%)”. This new asset would now be appropriate for transfer to an FLP because less than 80 percent would be listed securities. However, keep in mind that you are limited to 25 letters and titling the new asset.
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