The IRS takes a dim view on death bed or terminally ill transfers.
TRANSFER OF SUBSTANTIALLY ALL OF ONE'S ASSETS
The transferor contribution of substantially all of its assets to the FLP, including homes and other personal assets, without retaining sufficient funds for everyday expenses is not a good idea.
The FLP should not make disproportionate distributions to the transferor of his or her estate to pay living expenses or estate taxes.
FAILURE TO FOLLOW FORMALITIES
The parties fail to follow partnership formalities, such as transferring legal title to all property to the FLP and failing to keep proper books and records.
NO CHANGE IN BUSINESS OR INVESTMENTS AFTER FLP IS FORMED
Where there is little or no change in investment and business strategies after the transfer of assets to FLP, the IRS may have a problem.
COMMINGLING OF ASSETS
The parties commingling of partnership and personal assets has been a significant factor in cases in this area.
NO ACTIVE INVOLVEMENT BY YOUNGER FAMILY MEMBERS
Where younger family members are not actively involved in FLP business decisions and matters and do not understand the plan or do not receive advice from independent counsel or valuation experts, case law has held against the FLP.
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