Taxation of Family Limited Partnerships
Family Limited Partnerships (FLP) act as a regular pass-through entity and will file a tax return on Form 1065. The tax planning strategy is to gift the limited interest. These gifts should be made to some sort of qualified trust or other estate planning instrument. One great example would be an intentionally defective grantor trust (IDGT). This would move the limited partnership interest, and the assets which correspond to this interest, out of the taxpayer’s estate. This allows the assets to grow and appreciate outside the estate. With each year’s inflation of gift tax exemption, the taxpayer can look into funding additional assets to the FLP and gifting additional limited partner interest gift tax free
Stay tuned to our upcoming post on The Valuation of Family Limited Partnerships. You can also contact your Anders advisor to determine if a FLP is right for you.