Morrison Family Limited Partnership

Client Profile ▼

The Morrison Story

Robert Morrison built a regional building products distribution company over 30 years, growing it from a single warehouse in suburban Chicago to a multi-state operation. He sold the business in 2018 for $28 million to a national competitor. During the years he was running the company, Robert started buying commercial real estate on the side — partly as a hedge against the business, partly because he understood physical assets from his industry. He acquired three properties over a decade: an industrial flex building in Dallas, a strip retail center near his original Chicago base, and a small office building in Phoenix.

Now 68, Robert's priorities have shifted. The business is gone, the real estate portfolio is his primary legacy asset, and he's thinking about what happens when he's not around. Eleanor's early-stage dementia diagnosis eight months ago accelerated that thinking. He wants three things: keep control of the properties while he's alive and sharp enough to manage them, transfer as much value as possible to the next generation at the lowest tax cost, and create a structure that David can eventually step into as manager when Robert is ready to let go.

The challenge is that Robert's three children have very different lives and very different needs. Michael is a high-earning physician in California who views the partnership interest as a long-term investment and doesn't need the income. Sarah is going through a difficult marriage in Illinois and her partnership interest may be her most significant personal asset if the divorce happens. David is the most natural successor but his construction business has cash flow pressure, and he's already asked Robert about early distributions — which Robert sees as a test of whether David can think like an owner rather than an employee.

Robert's estate attorney Rachel Okafor has been advising the family for 20 years and drafted the FLP structure. His wealth manager Thomas Chen joined after the business sale and is focused on the bigger picture — the FLP is one piece of a portfolio that includes liquid investments, retirement accounts, and the Florida residence. Robert trusts both advisors but makes his own decisions, and he has a low tolerance for complexity that doesn't clearly serve a purpose.

Objectives

Transfer wealth to the next generation using valuation discounts while the lifetime exemption remains high
Retain full operational control through the GP until he's ready to hand off to David
Protect the family assets from creditors, particularly in connection with Sarah's potential divorce
Generate enough cash flow to cover all partners' tax obligations without distributing more than necessary
Position David as the eventual successor without creating resentment from Michael and Sarah

Entity Structure

flowchart TD %% Individuals — circles ROBERT(("Robert Morrison\n49% LP")) ELEANOR(("Eleanor Morrison\n20% LP")) MICHAEL(("Michael Morrison\n10% LP")) SARAH(("Sarah Morrison\n10% LP")) DAVID(("David Morrison\n10% LP")) %% GP entity — trapezoid (LLC taxed as disregarded/partnership) MGMT[/"Morrison Management LLC\nGP Entity · Delaware LLC"\] %% Partnership — trapezoid approximating triangle FLP[/"Morrison Family Limited Partnership\nDelaware LP"\] %% SMLLCs — disregarded entities, dashed border DALLAS["Morrison Dallas Industrial LLC\nIndustrial flex · Dallas"] CHICAGO["Morrison Chicago Retail LLC\nStrip retail · Chicago"] PHOENIX["Morrison Phoenix Office LLC\nOffice building · Phoenix"] %% GP ownership ROBERT -->|"50% owner"| MGMT ELEANOR -->|"50% owner"| MGMT %% GP → FLP MGMT -->|"General Partner · 1%"| FLP %% LP interests ROBERT -->|"49% LP"| FLP ELEANOR -->|"20% LP"| FLP MICHAEL -->|"10% LP"| FLP SARAH -->|"10% LP"| FLP DAVID -->|"10% LP"| FLP %% FLP → SMLLCs FLP -->|"Wholly Owned"| DALLAS FLP -->|"Wholly Owned"| CHICAGO FLP -->|"Wholly Owned"| PHOENIX %% Styles style ROBERT fill:#0a3020,stroke:#56d364,color:#56d364 style ELEANOR fill:#0a3020,stroke:#56d364,color:#56d364 style MICHAEL fill:#0a3020,stroke:#56d364,color:#56d364 style SARAH fill:#0a3020,stroke:#56d364,color:#56d364 style DAVID fill:#0a3020,stroke:#56d364,color:#56d364 style MGMT fill:#2d1b00,stroke:#5a3e00,color:#e3b341 style FLP fill:#0d2233,stroke:#1a3a5c,color:#79c0ff style DALLAS fill:#161b22,stroke:#30363d,color:#8b949e,stroke-dasharray:6 3 style CHICAGO fill:#161b22,stroke:#30363d,color:#8b949e,stroke-dasharray:6 3 style PHOENIX fill:#161b22,stroke:#30363d,color:#8b949e,stroke-dasharray:6 3

Individual

Taxed on personal return

Partnership / LLC

Partnership (flow-through)

Disregarded Entity

Treated as branch of owner

Partner Profiles

Robert Morrison (age 68)

Contributing Partner

State Florida

Profession Retired. Sold building products business in 2018.

Outside Basis $2,646,000

Healthy but aging. Wife Eleanor has early-stage dementia which increases urgency of estate planning. Robert is sharp, sophisticated, and deeply involved in managing the properties. He trusts his advisors but pushes back on anything that feels like overengineering.

Eleanor Morrison (age 65)

Passive LP

State Florida

Profession Homemaker. No independent business involvement.

Outside Basis $1,080,000

Early-stage dementia. This affects urgency of estate planning and may become relevant in later chapters regarding capacity and fiduciary issues.

Michael Morrison (age 42)

Passive LP

State California

Profession Physician. High W-2 earner.

Outside Basis $540,000

Busy career, not involved in property management. Views partnership interest as a long-term investment and estate planning vehicle. California residency creates state tax complexity on partnership income.

Sarah Morrison (age 38)

Passive LP

State Illinois

Profession Stay-at-home parent.

Outside Basis $540,000

Marriage is strained. Potential divorce raises questions about whether the partnership interest is marital property and whether the transfer restrictions protect against a spouse's claim. This becomes relevant in later chapters.

David Morrison (age 35)

Passive LP

State Texas

Profession Runs a small construction business in Texas.

Outside Basis $540,000

Closest to the real estate world of the three children. Robert sees him as the eventual manager of the portfolio. His construction business has had some lean years and he has occasionally asked about early distributions, which creates tension with Robert's preference to retain cash in the partnership.

Financial Summary — Formation

Morrison Family Limited Partnership — Balance Sheet at Formation
	FMV	Tax	704(b)	704(c)
ASSETS
Dallas industrial flex Cost $4,200,000 · Depr ($2,800,000)	$7,500,000	$1,400,000	$7,500,000	$6,100,000
Chicago strip retail Cost $3,800,000 · Depr ($1,900,000)	$6,200,000	$1,900,000	$6,200,000	$4,300,000
Phoenix office Cost $2,500,000 · Depr ($900,000)	$6,300,000	$1,600,000	$6,300,000	$4,700,000
Cash	$500,000	$500,000	$500,000	—
Total Assets	$20,500,000	$5,400,000	$20,500,000	$15,100,000
LIABILITIES
Mortgage on Dallas industrial flex	($1,800,000)	($1,800,000)	($1,800,000)	—
Mortgage on Chicago strip retail	($1,200,000)	($1,200,000)	($1,200,000)	—
Total Liabilities	($3,000,000)	($3,000,000)	($3,000,000)	—
NET EQUITY	$17,500,000	$2,400,000	$17,500,000	$15,100,000
PARTNER CAPITAL
Robert Morrison (49%)	$8,575,000	$1,176,000	$8,575,000	$7,399,000
Eleanor Morrison (20%)	$3,500,000	$480,000	$3,500,000	$3,020,000
Michael Morrison (10%)	$1,750,000	$240,000	$1,750,000	$1,510,000
Sarah Morrison (10%)	$1,750,000	$240,000	$1,750,000	$1,510,000
David Morrison (10%)	$1,750,000	$240,000	$1,750,000	$1,510,000
Morrison Management LLC (1%)	$175,000	$24,000	$175,000	$151,000
Total Partner Capital	$17,500,000	$2,400,000	$17,500,000	$15,100,000

Partner Outside Basis — Section 752

Each partner's outside basis = tax basis capital above + their share of $3,000,000 partnership liabilities allocated under § 752

Robert Morrison	$1,176,000	+ $1,470,000 debt	=	$2,646,000
Eleanor Morrison	$480,000	+ $600,000 debt	=	$1,080,000
Michael Morrison	$240,000	+ $300,000 debt	=	$540,000
Sarah Morrison	$240,000	+ $300,000 debt	=	$540,000
David Morrison	$240,000	+ $300,000 debt	=	$540,000
Morrison Management LLC	$24,000	+ $30,000 debt	=	$54,000

Key Agreement Provisions

Article 5 — General Partner Authority ▼

§ 5.1

The General Partner shall have full, exclusive, and complete authority and discretion to manage and control the business and affairs of the Partnership, including without limitation the power to (a) acquire, hold, manage, improve, and dispose of Partnership property, (b) borrow money and encumber Partnership property, (c) enter into leases, contracts, and agreements on behalf of the Partnership, (d) make all tax elections on behalf of the Partnership, and (e) make distributions to the Partners in accordance with Article 7.

§ 5.2

No Limited Partner shall have any right to participate in or exercise control over the management or business affairs of the Partnership. No Limited Partner shall have the authority to act for or bind the Partnership.

§ 5.3

The General Partner shall not, without the prior written consent of Limited Partners holding at least sixty-six and two-thirds percent (66.67%) of the outstanding Limited Partnership Interests, (a) sell all or substantially all of the assets of the Partnership, (b) merge or consolidate the Partnership with another entity, (c) admit a new General Partner, or (d) dissolve the Partnership.

⚖ Robert controls the GP through Morrison Management LLC. Robert and Eleanor together hold 69% LP, meaning they control even supermajority decisions. The scope of GP authority and retained control are central issues for this structure.

Article 7 — Distributions ▼

§ 7.1

The General Partner shall distribute to each Partner such Partner's pro rata share (based on Percentage Interests) of Available Cash, as determined by the General Partner in its sole discretion, at such times and in such amounts as the General Partner shall determine.

§ 7.2

Notwithstanding Section 7.1, the General Partner shall use commercially reasonable efforts to distribute to the Partners, at least quarterly, an amount sufficient to enable each Partner to satisfy such Partner's federal and state income tax obligations arising from such Partner's allocable share of Partnership income for such quarter (each, a 'Tax Distribution'). Tax Distributions shall be computed using an assumed combined federal and state rate of forty-seven percent (47%) applied to each Partner's allocable share of net taxable income for such period.

§ 7.3

Tax Distributions shall be treated as advances against, and shall reduce, any subsequent distributions of Available Cash to which such Partner would otherwise be entitled under Section 7.1.

⚖ GP has sole discretion on non-tax distributions. Tax distributions at 47% assumed rate. The discretion language and the rate itself are both significant provisions.

Article 9 — Transfer Restrictions ▼

§ 9.1

No Limited Partner may Transfer, assign, pledge, or encumber any portion of such Limited Partner's Interest without the prior written consent of the General Partner, which consent may be withheld in the General Partner's sole and absolute discretion.

§ 9.2

Notwithstanding Section 9.1, a Limited Partner may Transfer all or any portion of such Limited Partner's Interest to a Permitted Transferee without the consent of the General Partner, provided that written notice is delivered to the General Partner not less than thirty (30) days prior to such Transfer. For purposes of this Agreement, 'Permitted Transferee' means (a) a member of the transferring Limited Partner's immediate family, (b) a trust established for the benefit of the transferring Limited Partner or any member of such Partner's immediate family, or (c) an entity wholly owned by the transferring Limited Partner or any member of such Partner's immediate family.

§ 9.3

Any purported Transfer in violation of this Article 9 shall be void and of no effect.

⚖ Transfer restrictions require GP consent for all non-family transfers. The scope of Permitted Transferee and the GP's sole discretion over other transfers are important structural features.

Article 11 — Tax Elections ▼

§ 11.1

The General Partner shall have the sole authority to make all elections required or permitted under the Internal Revenue Code on behalf of the Partnership, including without limitation elections under Sections 754, 168, and 195.

§ 11.2

The Partnership shall use the accrual method of accounting unless the General Partner determines that a different method is in the best interest of the Partnership.

§ 11.3

The Partnership shall elect to depreciate all real property using the straight-line method under Section 168(b)(3) over the applicable recovery period. The General Partner may, in its sole discretion, elect to apply bonus depreciation under Section 168(k) to any eligible property placed in service by the Partnership.

§ 11.4

With respect to property contributed to the Partnership by a Partner, the Partnership shall account for the difference between the fair market value and the adjusted tax basis of such property at the time of contribution in accordance with Section 704(c) of the Code using the traditional method with curative allocations as described in Treasury Regulation Section 1.704-3(c). The General Partner may, in its sole discretion, elect to apply the remedial allocation method under Treasury Regulation Section 1.704-3(d) with respect to any contributed property if the General Partner determines such method is in the best interest of the Partnership.

⚖ GP controls all tax elections including 754 and depreciation methods. 704(c) traditional with curative as default method for contributed property.

Article 12 — Buy-Sell on Death ▼

§ 12.1

Upon the death of any Partner, the remaining Partners shall purchase the deceased Partner's Interest at a price equal to the appraised fair market value of such Interest as determined by an independent appraiser selected by the General Partner, less a discount of twenty-five percent (25%) for lack of marketability.

§ 12.2

The purchase price shall be paid in cash within one hundred eighty (180) days of the date of death, unless the General Partner and the estate of the deceased Partner agree to an installment payment schedule.

§ 12.3

If no independent appraiser is selected within sixty (60) days of the date of death, the fair market value shall be determined by the average of two appraisals, one selected by the General Partner and one selected by the estate of the deceased Partner.

⚖ Buy-sell triggered on death of any partner. Purchase price based on appraised FMV less 25% marketability discount. The relationship between this discount and the formation valuation discounts is a significant structural question.