A family limited partnership (FLP) can be a powerful tool for consolidating and managing family wealth while reducing gift and estate taxes, in part through valuation discounts. However, the IRS closely scrutinizes these arrangements, especially when they involve deathbed transfers or when donors fail to retain sufficient personal assets outside of the partnership. A recent U.S. Tax Court case — Estate of Anne Milner Fields v. Commissioner (T.C. Memo. 2024-90) — highlights some potential red flags when using this estate planning tool. Nuts and bolts Setting up an FLP is straightforward: A senior family member contributes assets, such as marketable securities, real estate and private business interests, to a limited partnership. In turn, he or she receives general and limited partner interests, which may be “gifted” to family...