a limited partnership whose interests are owned by members of the same family. By this arrangement, gift and estate taxes may be reduced. However, owners will not enjoy the freedom of complete ownership or free transferability of interest provided by other ownership vehicles.

partnership in which family members hold all interest in the partnership. This partnership is treated as a cash flow through stand-alone entity. All sums of income and credits, as well as deductions, flow through the partnership to the partners on a pro rata basis. The partners report their pro rata share on their individual personal income tax returns.

a limited partnership whose interests are owned by members of the same family. By this arrangement, gift and estate taxes may be reduced, though owners will not enjoy the freedom of ownership or transferability of other ownership vehicles.

Example: Afamily owned an office building that was worth $10 million if sold as one unit. A family limited partnership was formed to own the building. Each of 10 family members owned a 10% interest. Because of restrictions imposed by the family limited partnership, the sale of a single unit to an outsider would bring no more than $500,000. When a family member died, the unit was valued at $500,000. This amount was less than the federal estate tax exemption, so there was no estate tax. Had there not been a family limited partnership, the share would have been valued at $1 million, and the estate tax would have been about $150,000.