Family Limited Partnership: FLP, Estate Freezing Techniques

These entities often are a cornerstone in satisfying the clients’ goals. A versatile and dynamic structure that, when properly designed, has the ability to:

• Provide asset protection
• Give continuity of ownership/business succession
• Possible estate tax reduction tool
• Incentive tool to the next generation to get involved
• Risk spreading

A general highlight to these entities is to leverage the concept of “minority interest discounts”. A simple explanation; if you own less than the controlling interest in a business (51%), then the minority interest might not be classified at the full value of estate and gift tax computations. There is no exact formula for the level of discounts because it is a variable number depending on the type of assets, actual gifted amount, and others.

Common numbers for properly designed partnerships usually can average 15% for lack of control and 15% for lack of marketability. This is a generalization only, the actual number needs to be vetted with the client's legal counsel, CPAs , appraisers, and ultimately acceptance from the IRS.

With the gifted minority interest in the estate of the next generation versus the originator, the value and growth of that portion of the assets are removed from the originator's estate. Thus, a portion of the value of those assets now in another’s estate are said to be frozen.

Ideally, a quickly appreciating asset is appropriate for this type of technique. Understanding the big picture is why TailorMade Financial's clients rest easy.