Family Limited Partnerships: The Year in Review

The author wrote two articles in 2005 and 2006 about family limited partnerships (FLPs) and recent court cases. Since then, there have been three cases where the IRS won because of “bad facts” like transferring most assets to the partnership and using partnership funds for personal expenses. The article discusses these cases and also a Minnesota court case where a trustee wasn’t required to create an FLP. It also talks about changes to the Federal Estate Tax Return form. In 2001, Hilde Erickson’s daughter, Karen, set up a family partnership and transferred Hilde’s assets into it just before Hilde passed away. Karen then gifted part of the partnership to Hilde’s grandchildren. After Hilde’s death, Karen sold Hilde’s property to the partnership and used the money to help pay the estate’s taxes. The court looked at whether Hilde still had control over the assets she put into the Family Limited Partnership (FLP) even though she technically gave them away. The court thought that because the money was transferred to the FLP after it was created and some of it was sent back to Hilde, it seemed like she still had control. So, they said that she did still have control over the assets. The court looked at whether the sale was genuine and found that it wasn’t. Even though the family had some reasons for the sale, the court didn’t think they were significant enough. The court also found that the family didn’t handle the sale properly. So, the property transferred by Hilde to the FLP was included in her estate for tax purposes. After Sidney Gore died, his wife Sylvia, who had health issues, gave control of their assets to their children through a family partnership. The children didn’t really contribute anything to the partnership, but Sylvia transferred a lot of money and assets to it without really knowing what she was doing. Sylvia didn’t properly transfer her assets to the family limited partnership (FLP) before she died. She continued to control and use the assets, collecting dividends and interest and using the FLP account to pay her personal expenses. The court ruled that because she still owned and controlled the assets, they had to be included in her estate for tax purposes. Even if the transfer had been complete, the court said the assets would still be included because Sylvia had a lot of power over the trust assets. The court also said that Sylvia had made a secret deal to keep control and enjoyment of the assets, so they had to be included in her estate. In Bigelow, the court said that all the assets in a family partnership had to be included in the person’s estate for tax purposes. This was because there seemed to be an understanding that the person would still get the money from the property and the partnership would pay the person’s debts, and there didn’t seem to be any other good reason for the partnership. The Ninth Circuit agreed with the Tax Court that the transfer of the property to the family limited partnership (FLP) was not a genuine sale and the property’s value should be included in the decedent’s estate for tax purposes. The court said that the transfer was not made in good faith and there were no real reasons for it other than to avoid taxes. Therefore, the estate must pay taxes on the property. After Janice and Herbert Galloway died, their children objected to the fees charged by the bank that was in charge of their trusts. They wanted the bank to pay a fee for not setting up a specific type of tax reduction plan. The court ruled in favor of the bank, saying that they didn’t have to set up the plan because it wasn’t necessary for the trusts and didn’t fit with what Janice wanted. U.S. Bank was not responsible for creating a Family Limited Partnership (FLP) that could have reduced estate taxes. The court said even if they did create it, there’s no guarantee the IRS would have approved it, Janice would have agreed to it, or that U.S. Bank could have done it without breaking any rules. People in charge of trusts and estates need to pay attention to this case, because beneficiaries might try to make a similar claim in Florida. The IRS has been looking closely at gifts of discounted partnership interests, so it’s important to be careful when reporting these gifts on tax returns. The IRS has made it easier to report limited partnership interests for estate tax purposes. If a person who died owned interests in family partnerships, real estate, or other similar things, it needs to be listed on their tax return. If the reported interest was discounted, it has to be noted on the return. If there were any other discounted properties or transfers, they also need to be reported. It’s important to follow these rules to make sure everything is reported correctly. One way to reduce estate taxes is to sell shares of a family business to a trust. It’s important to report this sale on a gift tax return. If the sale isn’t reported, it will have to be reported when the person dies. When setting up a family business, it’s important to follow certain rules to avoid problems with the IRS. The rules are complicated, so it’s best to get help from a professional. This article is about family limited partnerships and tax laws. It was written by a lawyer and an associate at a law firm. They focus on estate and gift taxes and are members of professional organizations. The article is meant to help lawyers understand tax laws better.

Source: https://www.floridabar.org/the-florida-bar-journal/family-limited-partnerships-the-year-in-review/