And now for an understatement: “Family Limited Partnerships Require Good Planning and Execution.”
If you like a good horror story, then this recent article by Peter Reilly at Forbes and the case of Estate of Paul H. Liljestrand v. Commissioner should be both entertaining and instructive.
The subject is the role of the Family Limited Partnership (FLP), an common utilized for small business as well as estate planning, and the problems they can created.
The bottom line wisdom from the article is this: an FLP, like any other business entity, exists on at least three fronts.
- First, what you do with the partnership itself;
- Second, the accounting system of money going in and out of the FLP; and
- Third, and of utmost importance, the FLP is a legal entity with various requirements of which real honesty is essential.
To my ears, it sounds like the case above is a failure on all three fronts (it’s a mess), Reilly identifies the most fundamental downfall as a disconnect between the accounting and the legal aspects of the entity. In the end, here’s the moral of the story, according to Reilly:
The moral of the story is that in order for the plan to work you must have coordination between the attorney who prepares the plan and the accountant who will be preparing the relevant returns. If you don’t want to trouble yourself with what entity should pay what bill or accept what deposit, etc., let that piece be handled by your professionals, also, but again in an integrated manner. There has to be somebody who cares what account is used, because that is their job.
Here at our firm, we couldn’t agree more. Proper coordination between all of the members of your legal and financial team is critical to make sure your planning accomplishes what you hope that it will.
Check out the full story here.