The Court allowed a 47.51% valuation discount for a minority interest in a family limited partnership to stand even though the partnership had not been funded until a year after the decedent’s death. The rationale for the Court’s decision was based on Texas law, which states that the intent of an owner to make an asset partnership property will cause the asset to be partnership property. The Court concluded that even though no action had been taken to fund the partnership until over a year after the decedent's death, based on the Texas law, a partnership did exist and as such the valuation discount should be allowed.

The precedence of this case is unclear as it was handed down in August of 2009 and the IRS may appeal. Additionally, the decision by the Court was based on the Texas legal principles providing that partnerships are formed when the certificate is filed and the intent of the owner of the property to make it partnership property is determinative. Outside of Texas, the precedence may be limited or non-applicable in the after-death funding of family limited partnerships.

However, the valuation discount precedence that this case may set is what is truly important as it did not question the right to a valuation discount when the family limited partnership was established before the death of the decedent. Assuming that the partnership is properly formed, this case would provide leeway back into a conclusive determination that minority interests in a family limited partnership are entitled to valuation discounts.

Please keep in mind that as part of President Obama’s Fiscal year 2010 Budget Proposal, there are provisions to specifically eliminate valuation discounts in the family limited partnership area. Such law, if enacted, would be effective post enactment.

(Updated December 2009)