The Waltons was a long-running TV show in the 1970’s about a close-knit family that weathered tough times during the Great Depression and World War II. Today, people are more familiar with another set of soft-spoken, family-oriented Waltons, namely those who founded Wal-Mart, the world’s largest retailer.
In sharp contrast, the modern day Waltons are famous for their immense wealth, not to mention some controversial employment practices. But what may be lesser known about them is that their “Walton Enterprises,” a family limited partnership (FLP) created in 1953, laid the groundwork for an incredible tax-saving estate plan that greatly benefits the rich Waltons to this day.
Sam and Helen Walton set up the FLP, which included themselves and their four children, long ago, when they had almost nothing to put in it. Through the years, as Wal-Mart became established and grew, Sam used “Walton Enterprises” to transfer his company’s assets, which ballooned to over $18 billion, to other family members—at no gift or estate tax expense. By the time Walton died, he owned a mere 10 percent in Walton Enterprises, thereby saving his estate approximately $10 billion in federal estate taxes!
For years, estate planners have used FLPs and LLCs (Limited Liability Companies) to help people keep their growing assets and successful business or real estate investments in the family while minimizing estate and gift taxes.
Unfortunately, recent IRS buzz suggests these tax advantages may be at risk.
What Makes FLPs and LLCs So Strategic
How do FLPs and LLCs create such savings? An FLP is a partnership that allows you to centralize your family business and investment assets. Older generations retain control of the FLP’s operations and decision-making, while gifting limited partnership interests to younger family members over multiple years.
The strategic beauty lies in valuation discounts: the fair market value of the asset/interest given is reduced—often 20-40%, if not more. As ownership shifts over time, the older family members benefit from annual gift tax exemptions while simultaneously decreasing their own taxable estate.
Which is preferable, an FLP or an LLC? Like with all tax protection strategies, there are advantages and disadvantages to each type of entity. To learn whether an FLP or LLC will work for you and your business, your estate, or your family, request a consultation with a certified specialist who practices in this field.
As FLPs and LLCs have become more popular, they’ve also come under more scrutiny. Since the IRS frowns on any family partnership arrangement that appears tax-motivated, it’s important to have a business purpose at the core of your entity. An attorney who specializes in estate planning and FLPs (and family LLCs) can prepare your documents to hold up against an IRS inquiry.
Why You Should Act Now
While the IRS has considered changing tax laws to reduce or even eliminate valuation discounts, it has never done so. Now, however, there’s buzz that such changes may be in the works—and could go into effect within the year. Proposed regulations may impact only some types of intra-family transfers or all, and may or may not be retroactive prior to any regulation release dates. With so much uncertainty afoot, it’s wise to act before the IRS potentially limits your ability to protect your assets and gifting strategies.
At the law offices of Christine Weiner, we’ve helped many clients—including real estate investors, business owners, doctors, dentists, veterinarians and lawyers—use FLPs and LLCs to pass down financial assets and other property while significantly minimizing taxes.
No matter what the IRS may have up its sleeve, we’re here with responsive solutions, so you can give as much as possible to future generations. What’s good for the wealth-shielding Waltons—which, by definition, leaves out John-Boy and the crew—can still be good for your family too.