Family Limited Partnerships in Estate Planning

Tax Professionals' Resource
May 29, 2012 — 1,152 views  
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A family partnership in estate planning enables you to transfer important assets to family members. You will incur a much lower tax liability, and your family will be less likely to have to sell important assets to pay your estate taxes. Family businesses, investment portfolios and real estate all make good candidates for family limited partnerships.

With this arrangement, you will convey your assets to the partnership. You will own the partnership initially and will have the option to give your family members partnership interests. This will allow you to teach your family members about your business or about asset management while limiting their liability and maintaining control of the assets.

Two kinds of partners exist in a family partnership: general and limited partners. The general partner is usually a corporation or a LLC that is jointly owned by you and your spouse. The general partners will control the day-to-day operations related to the asset and will make decisions regarding any investments. General partners also receive a management fee proportional to the partnership’s income.

The limited partners will generally include you, your children and your grandchildren, depending upon whom you have granted partnership shares. While they will share some income from the family partnership, they will have no control over the operations. When you pass away, your heirs will dissolve the partnership and then allocate the assets based on how many shares each of them owns.

Placing assets into a family partnership means that your assets are discounted for tax purposes. In addition, limited partners have limited liability for activities related to the partnership. For example, anyone who sues you cannot take your share of the partnership’s assets.

Also, family partnerships allow you to give more to your heirs. The more of your assets that you can give as gifts, the less of your estate will be subject to taxation. Their tax burden will also be lower because the value of your assets is discounted.

If you own valuable assets, then you should take precautions to protect them from litigation. You should also use every possible estate planning tool to ease the burden on your heirs. You want your descendants to receive what you have earned during your lifetime. A family partnership in estate planning will offer you and your heirs both protection and peace of mind.

Tax Professionals' Resource