Estate Planning

Family Limited Partnerships

Family Limited Partnership May Be Used to Reduce Estate Taxes

     A family limited partnership (“FLP”) may be used to reduce estate taxes if established for reasons other than the tax savings.  In Estate of Black v. C.I.R., 133 T.C. 15 (U.S. Tax Court, December 14, 2009), a wealthy father, who established a FLP with his son and trusts for his grandchildren, passed that test. All of the parties transferred stock in the father’s former employer to a limited liability company (“LLC”) and took back proportionate interests in it. Although the estate tax savings by a discount for a partial LLC interest was discussed, the main reason for the transfers was to keep the grandchildren from selling their stock and to keep the son’s shares from the son’s spouse, whom the son later divorced. The Tax Court found that keeping the block of stock intact let the family maintain a seat on the board of the firm that the father had worked to build. The IRS’ attempt to tax the stock’s full value failed. [It took a mere 29 pages for the Tax Court to explain the intricacies of the parents’ estate plans.]