Family Limited Partnerships
Family Limited Partnerships ("FLPs") are a popular tool for estate planning. FLPs maximize family wealth while centralizing control 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 fair market value for estate and gift tax purposes. The difference between the fair market value of a limited partnership interest and the value of a limited partner's pro rata portion of the partnership's net asset value is frequently referred to as a "discount". 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.
The market considers the following factors when determining the fair market value of limited partnership interests:
- 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 income tax liabilities that are payable by the partners. Because a partnership may not distribute adequate income to pay the taxes incurred, limited partners may not receive distributions sufficient to satisfy income tax liabilities resulting from their ownership of limited partnership interests.
Adams Capital's professionals have substantial experience in the valuation of partnership interests. We use the latest available information regarding transactions of similar entities to determine the fair market value 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. Please use the FLP Preliminary Information Request as a guideline for gathering the required information to discuss the valuation of you FLP interest or give us a call.
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©Copyright 2005, Adams Capital, Inc.
Updated April 2005
Adams Capital, Inc. - Business Valuation Services
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