Taking The Right Steps When Using An FLP Or LLC

If you wish to transfer large amounts of wealth to your family at discounted values for gift tax purposes, you might consider forming a family limited partnership (FLP) or a limited liability company (LLC). However, a pitfall to be aware of when using an FLP or LLC is the step transaction doctrine. Let us take a closer look at how FLPs and LLCs work and how to avoid the step transaction doctrine.

Using an FLP or LLC

There are standard procedures for establishing an FLP or LLC:

1. Set up the vehicle, initially retaining all of the partnership or membership units;
2. Contribute assets to the entity, such as cash, real estate, marketable securities and/or business interests; and