FLPs and Discounts

Using an FLP to discount assets for estate tax purposes is similar to navigating between Charybdis and Scylla, not an easy task. In Erickson, T.C. Memo. 2007-207, the court frowned upon some of the usual negative facts. The taxpayer was diagnosed with Alzheimer’s and was in her late 80s. FLP documents were signed under a power of attorney, insufficient liquid assets had been left, assets were not transferred to the FLP on formation, transfers only occurred 2 days before death, post death FLP funds were used to meet expenses of the estate, etc. Judge Laro concluded that the aggregate of the facts demonstrated an implied agreement existed among the parties and therefore the decedent retained the right to enjoy the FLP assets. Therefore, estate inclusion resulted.