“Handling estates like an LLC (Limited Liability Corporation) can reduce taxes,” a recent article by Jeff Stimpson in Financial Advisor Magazine pointed out, explaining that family limited partnerships typically have two classes of owners, with the parents being “general partners”, and with heirs designated as “limited partners”. .
At our Geyer Law estate and business planning firm, we often explain to parents “the 3 P advantages” of structuring a family limited partnership as a personalized tool for passing their legacy to the next generation:
- preserving parental control
- protection from creditors’ claims
- protection against loss of assets through the divorce of one or more of their children
The Stimpson article did an excellent job of explaining an important concept in estate planning: For every asset that is part of your estate plan, three different components of that asset must each be considered:
- equity (ownership)
- cash flow
Since each of these components can belong to a different person or group, once assets are structured as a family limited partnership, the parents can maintain control of the assets while still giving away (or selling) ownership of those assets to the children. The cash flow, meanwhile, can be structured to go to either or both generations.
Family Limited Partnerships, Stimson cautions, are complex entities that must comply with both federal and state requirements and tax laws, and must also demonstrate they have a legitimate business purpose. While not every client situation will warrant setting up such a structure in a client’s estate plan, the 3 Ps and the 3 elements are great starters for any estate planning discussion.
– by Rebecca W. Geyer