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Here in Traverse City we have had traveling road shows coming through town promoting family limited
partnerships (FLIP’s) as panacea for everything and everyone. Better than trusts, they say. Asset protection for
all. Buy our package for $1,700.00 and solve all of your problems. Organized in Nevada, Colorado or
Delaware with our preprinted forms.
SNAKE OIL.
They say that two strongest emotions in financial decisions making are fear and greed. You have all
experienced how these two emotions impact your Clients. Fear of that awful monster "Probate Court has
spurred the growth of revocable trusts (and many people think they are avoiding taxes with these trusts,
misplaced greed, we all know that avoiding taxes isn’t this easy.)
The promoters of FLIP’s are promoting fear of creditors to sell their FLIP packages.
Does everyone need to lay out $1,500.00 - $2,000.00 because they fear creditors? Most of us have
homeowners and auto owners insurance, and even a liability umbrella for $150.00 per year, to take care of
tort creditors. Despite the fact that these traveling promoters are like umbrella salesmen, they are finding
plenty of takers. Otherwise they wouldn’t be traveling through Traverse putting on seminars.
WHO SHOULD BE CONCERNED ABOUT CREDITORS.
Tort creditors are not something that cause most of our Clients to lose sleep. Who does wake in a cold sweat
at the thought of lawsuits? Engineers, architects, physicians are the first ones to come to mind. Even lawyers,
pharmacists, contractors face large liability for mistakes. Asset protection for them is a sophisticated matter,
not something to be bought off the web or in a package.
WHAT IS A FLIP?
FLIP is the common generic name for a family limited partnership or family LLC. Probably because the name
has a catchy ring. I have tried Fame, an acronym for family asset management entity as a more generic
descriptive term. To my consignation it hasn’t caught on. FLIP is the term everyone uses, whether the entity is
a LLC or a Partnership. This may have something to do with the fact that most of the decided cases involve
limited partnerships, while an LLC is a relatively new entity in Michigan and other states, compared to limited
partnerships which have been around for decades.
IS A FLIP THE GREATEST THING SINCE SLICED BREAD?
Let’s face it, a FLIP is a key estate planning element for large estates. Certainly with joint assets over three
million dollars, at current exemption levels, a FLIP is something that should be examined as a tax reduction
and management strategy.
Does it make sense for everybody? Absolutely not. It is relatively expensive and extremely sophisticated in its
organization and implementation.
Like many trusts which never get funded, many FLIP’s get organized but get ignored in the day to day
implementation, to the delight of the IRS.
DISCOUNTS.
Valuation discounts are one of the driving motivations for the organization of FLIP’s. There are plenty of non-
tax benefits from organizing FLIP’s. These are always highlighted in well presented court cases.
The good news that the tax payer usually win the litigated cases. The bad news is that litigation and argument
with the IRS is almost inevitable. The Estate Planning Bar was told at a seminar in Traverse City not to long
ago by the head of the estate tax section of the IRS in Detroit that 90% of their case load had to do with
valuations. Most of these would be property and FLIP valuations. While tax payers have a winning record in
the tax court, this is a long and expensive process, one which wears on the patients and pocket books of our
Clients. The whopping discounts of 35%-50% are not the low hanging fruit anymore. Tax practitioners in our
area report that IRS auditors in _________________ are digging their heels and not approving big discounts
as a matter of course.
ARE FLIP’S OUT THE WINDOW?
Of course not. FLIP’s are almost obligatory in large estates as a planning element to reduce transfer taxes.
They conserve a multitude of purposes which I will go into next months newsletter. However they are not for
the Client with a small estate or the faint of heart. They are not for the Client who wants to wing it, do it himself
or ignore professional counsel.
Like my Dad always said, you don’t hunt elephants with a B-B gun. A FLIP is the proverbial elephant in the
estate planning jungle. The potential tax savings can be tremendous, but the expenses, risks and hazards
cannot be ignored.
If you have Clients with large estates you help integrate the most sophisticated tax planning with sensible
planning fitted to each families objectives.
©BRANDT, FISHER, ALWARD & ROY, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional
advice.
| WEALTH CONSERVATION: PROFESSIONAL ALERT Brandt, Fisher, Alward & Roy, P.C. |
| June 2001 HAVE YOUR CLIENTS FLIPPED FOR FLIP’S? by James R. Modrall III, J.D., C.P.A. |
| If you would like to receive future editions of the monthly Wealth Conservation Newsletter directly to your e-mail account, please e-mail our office using the following link: Estate Planning Newsletter |
| Brandt, Fisher, Alward & Roy, P.C. Attorneys at Law |