by Tony Novak, CPA, MBA, MT
, revised 11/28/2011
Family limited partnerships (FLP) were a popular way for family businesses to protect assets and reduce estate taxes over the past two decades. They were especially popular for holding stock and real estate that was intended to pass from parents to children. In recent years the IRS and Tax Court took a tougher stance on these tax shelters. Most financial advisers have modified the format of the FLPs they recommend now to comply with the more conservative legal positions. Many FLPs set up years ago and not recently updated could be held invalid by the IRS, making them useless for reducing taxes after the death of a parent.
Your FLP could be in trouble if any of the following apply:
While none of these factors is by itself a fatal blow to the tax status of an FLP, the occurrence of any of these is good reason to schedule an overall financial review. The FLP might either be updated or exchanged for a more secure legal format like a family limited liability company.
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