Family limited partnership - Question from Kaplan


I came across the following question in Kaplan for which the explanation I don´t understand:

After attending a recent conference on wealth planning for high net worth individuals you prepare several summary points to present to your coworkers:

  • I. An estate tax freeze is a good way to shift the tax burden on future appreciation to the next generation.
  • II. A family limited partnership allows the founding member of a company to shift day to day company management of the business to the next generation while retaining the benefits of appreciating value in the company for the founder.

Which of the statements are most accurate?

The answer is “Only Statement I”, with the following explanation:

An estate tax freeze is generally used to shift future appreciation and resulting tax liability to others. The family limited partnership is also designed to shift future appreciation to others and away from the giver. The giver would act as general partner and therefore still have control of the business.

MY QUESTION: Could someone explain what’s the difference between the Statement II and the explanation given. For me both of the statements are correct.

The founder will remain as the general partner and retain control. The management will not be passed to the next generation. The “next generation” stays as LPs with small noncontrolling interest, which discounts the valuation of their interest (for lack of control and for lack of marketability). With lower valuation, the gift tax on the the Limited Partnership interest (from founder to next generation) will be lower.