Changing Values: Resolving the Mismatch of Estate Inclusion Value and Deduction Value

July 2008
Estate Planning
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The changing value problem for family limited partnership interests should not be overlooked, given its real potential to produce substantial estate tax liability upon the first spouse's death—even in the case of a well-structured and well administered FLP that is not subject to Section 2036 of the Internal Revenue Code.

Family limited partnerships (FLPs) and limited liability companies (LLCs) have received considerable attention from the IRS in the past several years, and the IRS has been successful in many cases attacking these entities—generally where the taxpayer has acted in an egregious manner. Despite the IRS's many successful attacks on these entities, most planners agree that these entities work to reduce value if properly structured, implemented and monitored. The ones that fail are those with "bad" facts or where something was done wrong—for example, where the parties did not respect the existence and separateness of the entity.