Reminder from the Tax Court on FLP Pitfalls
If you are advising clients on estate planning strategies involving family limited partnerships (FLPs ), the recent Tax Court decision in
Estate of Fields v. Commissioner, TC Memo 2024-90 deserves your attention.
In this case, the Tax Court determined to bring back into the decedent’s estate under §2036 all the assets that were transferred to a family-investment partnership (“FLP”) in hopes of receiving valuation discounts of the FLP interest on the death of the decedent. The taxpayer’s failure to achieve this estate planning objective is not surprising for an investment partnership formed one month before the decedent’s death, for which significant funding took place ten days before the decedent’s death and which was formed pursuant to a power of attorney granted to the decedent’s nephew. One should note, however, that as part of the laundry list of reasons that the Tax Court sided with the IRS, was a conclusion that the FLP had been “over-funded” by reason of the decedent not retaining sufficient assets to fund the decedent’s estate tax liability. This has been the view of the Tax Court in a majority of, but not all, FLP cases. Needless to say, for those doing FLP planning, this issue requires careful consideration.
Looking Ahead. . .
Assuming Congress does not decide to eliminate the estate tax, the
Fields decision will be one of many developments discussed at
this year’s programs. See our full registration information for all our fall
Tax Planning Forum and
Fundamentals of Flow-Through programs. There are still a few spots remaining for our
final spring Fundamentals session - don’t miss your chance to join us.