Dotting the “I”s and Crossing the “T”s in the Family

Dotting the “I”s and Crossing the “T”s in the Family
May 12, 2007 jersey Advanced Estate Planning 0 Comments

A common tool for a sophisticated estate plan is the creation of a Family Limited Partnership (FLP) or Family Limited Liability Company (FLLC). Basically, these entities allow grantors to get a discount on the assets that they contribute to the FLP or FLLC. That discount is based on a number of factors, but two of the biggest ones are a lack of control and a lack of marketability for the units that are given in exchange for the contributed assets.

Too often the grantors, their family or their counsel don’t take the necessary steps to protect the planning tool against a collateral attack by the IRS pursuant to Section 2036 of the Code. Some of the things you should consider are:

1) No comingling of partnership assets. In fact, keep the personal use assets out of the FLP or FLLC (vacation home, residence, etc.).
2) Establish a pro rata distribution (if any)
3) Avoid implied agreements, where the senior family member transfers almost all of the assets to the FLP or FLLC, and retains insufficient assets on which to support the lifestyle.

There are a number of actions you should take before, or upon, the formation of the FLP or FLLC, but that’s for another post and may be too late for some people.

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