Family Partnership

How can the FLP help me make discounted lifetime gifts?

If you establish an FLP and subsequently make lifetime gifts of the limited partnership interests to your children, the limited partnership interests would entitle your children to all of the economic benefits from their gifted partnership interest, but without any management authority relating to the partnership property. Because of the restriction, as discussed above, the limited partnership interest has a reduced value. The value of any limited partnership interest you give to your children during your lifetime will be removed from your estate for estate tax purposes. Following your death, only the value of your general partnership interest and any remaining limited partnership interest you still own will be includible in your estate for estate tax purposes.

The restriction on transfer referred to above, has an added benefit when the limited partnership interests are gifted to your children, since the restriction will provide some protection from a child’s judgment creditor (such as a divorced spouse). A child’s creditor will not be allowed to reach the underlying partnership assets to satisfy a judgment, but rather will only be entitled to the child’s economic interest in the partnership, i.e., the right to partnership distributions, if any.