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Abstract: 

The glittering allure of the Family Limited Partnership (hereinafter “FLP”) as an estate planning technique has been dimmed by recent developments, but remains untarnished. Two recent Circuit Courts of Appeals opinions reveal the benefits and perils of the formation of an FLP. Estate of Kimbell examined whether Section 2036(a)(1) recaptured assets transferred to an FLP in the gross estate of the transferor. If the transfer lacked “full and adequate consideration,” the answer is in the affirmative. In Turner v. Commissioner, a similar issue was addressed. In Kimbell, Section 2036 was not applied. However, in Turner, the outcome was the opposite. Turner held that the assets were recaptured and taxable in the estate. The “recycling” of assets now stands as an obstacle to achieving the goal of the estate planner—no gift or estate tax implications on the formation of an FLP. If the assets transferred to the FLP are merely “recycled,” the FLP is but another form of a will substitute. The formation of an FLP in which assets merely spin is equivalent to a testamentary transfer. Naturally, undesirable tax consequences follow.

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Affiliations:  1: Albany Law School.