Structuring and Operating Family Limited Partnerships: Asset Protection and Income Tax Reduction

Shifting Income Tax Burden to Lower-Taxed Family Member Partners, Application of Section 199A, Valuation Discounts

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Tuesday, August 28, 2018

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers with a practical guide to structuring and operate Family Limited Partnerships (FLP) in light of the withdrawal of the proposed Section 2704 valuation regulations and the new tax reform bill. The panel will discuss the income tax and asset protection benefits of FLPs, detail how to withstand IRS scrutiny of transfers and operations and address the interplay between estate planners and income tax advisers, in particular concerning planning to obtain a step-up in basis upon death.

Description

Last year's tax reform bill plus the Service's withdrawal of the controversial Section 2704 valuation regulations removes some uncertainty and complexity in using FLPs in estate planning but introduces others. While the increased estate-exemption amount lessens the need to take aggressive valuation discounts on assets transferred into an FLP, the structures retain significant asset protection and income tax savings features.

The general structure of an FLP involves a grantor transferring assets into a partnership, with the grantor serving as a general partner, thus retaining ownership and control over the transferred assets. The general partner then grants limited partnership shares to family members or other potential heirs/beneficiaries.

Estate planners can use FLPs to achieve income tax savings by arbitraging differing income tax rates among limited partner family members. By granting income shares to family members who may be in a lower income tax bracket, the general partner can reduce overall income taxes on income.

However, the new tax law created some complexities in the tax implications of operating FLPs, particularly in determining whether the Section 199A pass-through deduction is available to recipients of limited partnership interests under the capital ownership rules of IRC 704(e). Planners must be conversant in the 199A rules in structuring transfers of income-generating assets to an FLP to maximize pass-through deduction benefits.

Listen as our experienced panel provides a practical guide to funding and structuring a family limited partnership, as well as operating the FLP to withstand potential IRS scrutiny.

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Outline

  1. Using FLPs for asset protection and business continuation/succession planning
  2. Structuring and funding options
  3. Discounting options after rescission of Section 2704 regulations
  4. Application of Section 199A deduction to FLPs
  5. Income tax minimization opportunities
  6. Business operation challenges
    1. Business purpose rules
    2. Using FLPs with trusts and other wealth transfer vehicles
    3. Distribution strategies
    4. Maintaining cash flow for transferor general partner

Benefits

The panel will discuss these and other relevant topics:

  • How does the new Section 199A pass-through deduction apply to family limited partnerships?
  • Withstanding IRS scrutiny in operating an FLP for non-tax reasons under the business purpose rules
  • Using distributions to shift income tax burden to limited partner family members with lower marginal income tax rates
  • Strategies for funding FLPs through nontaxable transfers and sales
  • Discounting factors under the new exemption amount in light of the rescission of the proposed Section 2704 regulations

Faculty

Myers, Diana
Diana Myers

Tax Counsel and Wealth Planner
Northern Trust

Ms. Myers works to keep clients and colleagues up-to-date on leading tax planning strategies and wealth transfer...  |  Read More

Weaver, Scott
Scott D. Weaver

General Counsel and Chief Fiduciary Officer
Willow Street Group

Mr. Weaver is a trust and estate attorney serving both domestic and international families and their advisors. Before...  |  Read More

Other Formats
— Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

$297

Download

CPE Not Available

$297