Family Partnership

How does an FLP reduce the value of my estate?

Your FLP can also be drafted to provide that the limited partners will not be allowed to transfer their partnership interests during their lifetime without the consent of the other partners. This restriction on the transfer of the partnership interests will discount the value of the gifted partnership interest for gift tax purposes by reducing its marketability ("marketability discount"). Because the limited partners will not have any voice in the management of the partnership, the value of the gifted limited partnership interest will be discounted to reflect this lack of control ("control discount"). Combined, these two discounts typically reduce the value of the transferred interest for gift tax purposes by 20%-60% (and the taxes by 10-25% or more), depending on what type of assets are held by the partnership (a greater discount is typically allowed when the assets held by the partnership are not readily marketable, e.g., closely-held securities, interests in real estate, etc.).