Tax Tip - Consider Family Limited Partnerships Business owners can reduce their tax bite and maintain control over the assets they are giving away by creating a family limited partnership (FLP). Unlike some estate planning tools, FLPs are flexible: You can adjust your partnership structure as your or your family's needs change. In an FLP, the parents or grandparents making the gift become general partners, who control the assets but have a minority interest. Children or grandchildren are designated as limited partners, generally receiving no control over the FLP's management or assets. And their liability is limited to their partnership interest.

One key FLP benefit is your ability to reduce estate taxes by transferring assets to it. Either all at once (using your $1 million lifetime gift tax exemption and perhaps even paying gift tax beyond that point), or over a period of time (using the annual gift tax exclusions each year; limitations apply), general partners may give up to 99% of the FLP to younger generations. Assets you give to your limited partners are valued for gift tax purposes at a substantial discount because of lack of control and reduced marketability. The limited partnership shares are worth less than their face value because the limited partners have no control over the FLP and you must consent to convert them into cash.

Questions? Contact Marilyn Millare.