Family Limited Partnerships (FLPs) and the benefits of leverage

By giving the partnership interests in increments over a period of time, you would be able to take maximum advantage of the $10,000 annual gift tax exclusion. The exclusion increases to $20,000 if you’re married and if each spouse elects to give the maximum amount. The gift tax exclusion is also indexed for inflation.

Additionally, “minority discounts,” (allowable reductions to the value of the gift because it is a minority interest) could lead to greater leverage of the annual exclusion and the unified credit. For example, you may be able to discount the value of the gift up to 30% or more. However, in order for the discount to be valid, there has to be a legitimate business reason for the partnership.

Generally, your desire to keep the business in the family is a legitimate reason to set up a partnership agreement, just as long as you are joined together for the purpose of enterprise and not just to avoid taxes.

flp

Family Limited Partnerships

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