Discounts For Family Limited Partnerships
Description
How to fill out Family Limited Partnership Agreement And Certificate?
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FAQ
An FLP must be established for a legitimate business purpose, such as efficient asset management and protection from creditors, to qualify for valuation discounts. Partnerships set up exclusively to minimize gift and estate taxes won't pass IRS muster.
The most common valuation discounts used in transferring ownership interests in family owned businesses are those for lack of marketability, lack of control and minority interest or share. These discounts, alone or in combination, may range from 10% to 50% or higher depending on a number of factors.
A family limited partnership (FLP) is an arrangement in which family members pool money to run a business project. Each family member buys units or shares of the business and can profit in proportion to the number of shares they own, as outlined in the partnership operating agreement.
Discounts applied to FLPs and FLLCs arise from the attributes of these entities that decrease (or adversely affect) the desirability of these owner- ship interests as investments. Most broadly, discounts applied to ownership interests in FLPs and FLLCs reflect a lack of (1) ownership control and (2) marketability.
It is important to understand that the discount applies to the value of the interest in the FLP; the value of the asset held in the FLP remains the same. Thus, for example, a family home worth $1,000,000 before estate planning, remains valued at $1,000,000 after its contribution to an FLP.