Key takeaways from Turner and recent FLP cases

As we recently reported, the taxpayer in Estate of Turner failed to persuade the Tax Court to preserve the discounted value of a family limited partnership (FLP), due largely to the passive character of the transferred assets (marketable securities) and the partnership’s lack of any legitimate, non-tax business purpose, including any overriding investment philosophy.

The takeaways from Turner: If asset consolidation and centralized management are among the stated, non-tax purposes for the FLP, then “don’t hold passive assets; don’t have the same management [before as after formation]; and don’t have the same investment philosophy,” said Stacey Delich-Gould (Cahill Gordon & Reindel LLP), who spoke at the recent 2011 Fall Meeting of the ABA Section of Taxation and Section of Real Property and Trust & Estate Law in Denver. “Do have arms-length bargaining” among the designated general and limited partnership interests, she added. The bottom line: “The [FLP] cases in which the estate has been successful in Tax Court have all come under the protection of the bona fide sale exception,” Delich-Gould said. “Therefore, a real, significant non-tax purpose for the partnership is an essential element of any successful plan.”