Family Limited Partnerships
Family Limited Partnerships are preferred vehicles for transferring assets from your estate to your children while leaving you and/or your spouse, as general partners, in total control of your transferred assets.
- Reduce or Avoid Estate and Gift Taxes. You may gift up to $11,000 per year to anyone without
paying gift taxes. Joined by your spouse, you may gift up to $22,000 per child. If you have five children
as I have, you and your spouse can gift up to $110,000 per year to your children (actually, you can gift
more to a family limited partnership because the fair market value of a family limited partnership is less
than its face value because your child would have difficulty selling its share). We typically value a $25-28,000
gift to a family limited partnership at $22,000. Once your assets exceed your $1,000,000 exemption, anything
you transfer to your children by way of gifting to the family limited partnership saves such assets from
a 54% estate tax.
- Asset Protection. Once you have transferred your assets to your children as limited partners, such assets are no longer yours and are therefore out of the reach of your creditors and safe from bankruptcy.
The Basics of FLPs
FLPs are setup much like traditional limited partnerships. There are two parties
involved: "General Partners" which control the trust, and "Limited Partners" who
have a share in the profits (but hold, not control).
How a typical FLP Works:
- Business converted to Limited Partner and General Partner shares.
- You maintain control by keeping General Partner shares.
- Use your annual gift exclusion of $12,000 to gift away Limited Partner shares to your family and heirs.
Who Maintains Control? You do.
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