What discounts may a Family Limited Partnership qualify for regarding gift tax?

A Family Limited Partnership (FLP) can qualify for both a minority discount and a lack of marketability discount when it comes to gift tax implications.

The minority discount applies because when a gift of partnership interests is given, the recipient typically does not have control over the partnership's management or its decisions. This lack of control makes the interest less valuable than a controlling interest in the same partnership. As a result, the fair market value of the gifted interest can be diminished, thereby reducing the taxable value of the gift.

The lack of marketability discount comes into play because ownership interests in a Family Limited Partnership are often not publicly traded, making them less liquid than other assets. This means that an owner cannot quickly sell or convert their partnership interest into cash without considerable effort, which further decreases its market value. This discount reflects the difficulty associated with selling the interest promptly and without a substantial discount.

Together, these discounts can significantly lower the taxable value of gifts made through an FLP, providing a strategic advantage in estate planning and gift tax reduction strategies.