Family Limited Partnership (FLP): The “30% Off” Coupon for Gift Tax

Tax Tips / Estate Planning

Family Limited Partnership (FLP): The “30% Off” Coupon for Gift Tax

By Team BMT Jan 18, 2026

💡 Executive Summary

  • Problem: Gifting $10M in cash or real estate directly to children uses up $10M of your Lifetime Exemption immediately.
  • Solution: Place assets into a Family Limited Partnership (FLP). Keep 1% control (GP) and gift 99% non-voting interests (LP) to kids.
  • Result: Because LP interests have no control and are hard to sell, the IRS allows a 30-40% valuation discount. You gift $10M of value but only report ~$6.5M.
⚠️ BUSINESS PURPOSE RULE
You cannot just put a personal checking account or your primary residence into an FLP. It must be a legitimate business entity holding investment assets (Rental Real Estate, Private Equity, etc.). If you treat it like a personal piggy bank, the IRS will pierce it (Section 2036).

Before you use any advanced trust (DAPT, GRAT), you must first create the “Container.” The FLP (or FLLC) is that container. It transforms liquid, high-value assets into illiquid, discounted “Partnership Interests,” instantly creating wealth transfer efficiency.

🧐 Core Mechanic: DLOC & DLOM
1. Lack of Control (DLOC): Limited Partners can’t make decisions (sell assets, distribute cash).
2. Lack of Marketability (DLOM): You can’t sell LP shares on the NYSE.
Combined, these justify a 30%+ discount in the eyes of a qualified appraiser.

Performance Simulation

Gift Tax Efficiency ($10M Asset)
Direct Gift (Cash/Property) $10M Exemption Used
1:1 Ratio
Gift via FLP (35% Discount) Only $6.5M Exemption Used*
$3.5M Tax-Free Shift

Roles in the Partnership

Role Ownership % Power & Rights
General Partner (GP) 1% (Parents) 100% Control (Buy/Sell/Distribute)
Limited Partner (LP) 99% (Kids/Trusts) 0% Control (Silent Owners)
Creditor Protection High Charging Order Protection Only
“The rich do not own assets directly. They own ‘interests’ in entities that own assets. The FLP is the legal wall that separates ownership from value.”
BMT designs for tax reality, not theory.