Family Limited Partnerships (FLPs)

Family Limited Partnerships ("FLPs") are a popular tool for estate planning. FLPs maximize family wealth while centralizing controls of family assets for efficient management. Since 1993, the Internal Revenue Service has allowed family interests to be treated as non-cumulative for determination of appropriate discounts for estate and gift tax purposes. The term "discount" describes the difference between the fair market value of a limited partnership interest and the net asset value of a limited partner’s interest in the partnership. The use of the FLP vehicle combined with appropriate discounting can reduce significantly the estate and gift tax burden on asset transfers between family members.

To determine an appropriate discount for a partnership, Adams Capital relies on the latest available information regarding trades of similar entities.

The market discounts limited partnership interests for various reasons, including:

	Illiquidity - Limited partners cannot force the liquidation of the partnership assets to recover their investment.
	Lack of marketability - These partnership interests are generally not transferable, and cannot be bought or sold as easily as equity that is regularly traded on a public market.
	Lack of control - General partners control the partnership’s day-to-day operations and make decisions that have significant impact on a partnership’s financial performance. Limited partners have little, if any influence on these decisions.
	Cash Flow Taxation – Limited partnerships potentially generate Federal income tax liabilities. This tax is payable by the partners. Some partnerships do not distribute adequate income to pay the taxes incurred. Thus, limited partners may not receive distributions sufficient to satisfy income tax liabilities that may arise by virtue of their ownership of limited partnership interests.

Adams Capital’s professionals have substantial experience in the valuation of partnership interests. We work closely with our clients’ legal and financial advisors to ensure that our work is conducted in a professional, timely, and economical manner.

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