There are so many estate planning tools that most people remain unaware of. Generally speaking, people associated estate planning with wills. They might know a little about trusts. Others might even have some familiarity with things like advance health care directives. The scope of estate planning tools, however, is much broader and more inclusive than most people usually realize. For instance, have you ever heard of a Family Limited Partnership? It can be a valuable estate planning tool.
What is a Family Limited Partnership (FLP)?
A Family Limited Partnership (FLP) is, of course, a type of partnership. More specifically, it is a partnership that exists between family members that have active involvement in a trade or business. Alternately, the involvement may be in the ownership of a wide variety of assets. For instance, an FLP can be an ideal way for family members to own business assets like real estate, stocks, and other securities.
The partnership structure permits the family members to establish rules on how the assets or business will be managed. It also allows for the division of income, as well as asset appreciation and asset control. A family member can serve the partnership as a general partner or limited partner. While a general partner has direct control over the partnership as well as a duty to run the partnership in a way that serves the best interests of the other partners, limited partners are, for the most part, solely in an investor role in the business. General partners are responsible for investing the partnership assets and making day to day decisions on behalf of the partnership.
An FLP is a commonly employed technique as an estate planning tool for shifting income tax burdens from parents to children. Because the partnership interests can be transferred to your children upon your passing, the interests and any appreciation on the interests held in the FLP will not be included in your taxable estate when you die. Only the value of the taxable gifts valued at the time you transferred them into the FLP will be included in your taxable estate.
The shifting of income tax burdens and capital gains to your children can be an effective way to lower your taxable estate when used for assets that are subject to the Federal estate tax. The burden is unlikely to fall as heavily on the shoulders of your children, as well. This is because the income shifting usually reduces the income tax burden as the income is spread to multiple children and will be subject to their own individual tax rate as opposed to that of their parents. FLP’s have the added benefit of shielding limited partners from creditors. Due to the fact that limited partners are not held liable for the actions of the general partner, they are also not held liable to the partnership’s creditors.
Estate Planning Attorney
Do you have questions about FLPs and other estate planning tools that may best protect your goals for yourself and your family? The dedicated estate planning team at Verras law is here with answers. Contact Verras Law today.