Family Limited Partnerships

A family limited partnership (“FLP”) is an estate planning tool that is used to minimize or eliminate gift tax on transfers of assets to family members in the next generation. Alternatively, a family limited liability company (“FLLC”) may be used to accomplish the same goals. The FLP or FLLC is established and the individual transfers assets (for example, real estate) into the FLP or FLLC. Gifts of ownership interests are made to beneficiaries to divide up or fractionalize the ownership. By use of fractionalized interests the beneficiaries become minority owners, holding minority interests in the entity. Under current Federal tax law, a transfer of a minority interest results in the lowering of the value of the gift for transfer tax purposes (“minority interest discounts”). Since most FLP agreements (Partnership Agreements”) or FLLC agreements (“Operating Agreements”) provide for restrictions against transfer of ownership interests the transferor receives additional discounts to the value of the gift transferred because of the lack of marketability of the ownership interest transferred (“lack of marketability discount”). Use of both the minority interest discount and the lack of marketability, discount and by taking advantage of the annual federal gift tax exemption of $12,000.00 per person, the FLP or FLLC becomes a beneficial tool in reducing transfer tax. More importantly, once the transfer is made, the growth in value incurs to the benefit of the beneficiary, thus reducing estate tax further.

Thomas E. Raines, PC represents clients throughout the Atlanta metro area: Fulton County, Cobb County, Clayton County, Dekalb County, Forsyth County, and Gwinnett County, including the cities of Norcross, Alpharetta, Roswell, Sandy Springs, Johns Creek, Marietta, Decatur, Lilburn, Lawrenceville, and Cumming. Contact Thomas E. Raines, PC today.