Estate Planning with a Family Limited Partnership Montrose CO

A Family Limited Partnership can be a very powerful estate planning tool. Attorney Jason Woodward explains what a Family Limited Partnership is and — if you have a family business — how you and your family may be able to benefit from one, in this article from JD Supra :

Could Your Family Benefit from a Family Limited Partnership?

Effective estate planning should address wealth transfer from a practical and cost-effective approach. One estate planning strategy that families with closely held businesses should consider is the family limited partnership. 

What Is a Family Limited Partnership?

A family limited partnership is a partnership agreement that exists between family members who are actively involved in a trade or business. The partnership divides rights to income, appreciation, and control among the family members, according to the family’s overall objectives. Under family partnership rules, the “family business” can include real estate or investments. 

How Is This Arrangement Achieved?

Under the most common form of family partnership, you would begin by creating general and limited partnership interests in your business. Once the partnership is established, you then gift the limited partnership interests to your children.  By holding the general partnership interest, you are considered the “general partner” and maintain control over the enterprise. Your children are the “limited partners,” and the limited partnership interest lets them share in the ownership of your business as well.  

A Sound Strategy for Transferring Ownership

A family limited partnership enables you to provide your children with an interest in your business while achieving many goals. First, you can gauge whether or not they possess suitable ownership abilities by involving them in the business. Second, it removes the asset from the parents’ estate, thus lowering the estate tax liability, if properly executed. In addition, you can transfer the limited partnership interests in increments over time, resulting in a gradual, systematic transfer of ownership. Finally, and perhaps most importantly, there may be immediate income tax benefits. 

Estate Tax Savings

The interests transferred to your children, including all appreciation since the transfer, escape inclusion in your estate when you die. Only the value of the taxable gift(s) will be included. This can result in estate tax savings down the road.

The Benefits of Leverage

By giving the partnership interests in increments over time, you can take maximum advantage of the $12,000 annual gift tax exclusion. The exclusion increases to $24,000 if you’re married and if each spouse elects to give the maximum amount. The gift tax exclusion is indexed for inflation.

In addition, “minority discounts” — allowable reductions to the value of the gift because it is a minori...

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