Family Limited Partnerships: Ensure You and Your Family Win, and the IRS LosesNovember 1, 2013
To win the estate-tax game requires a comprehensive plan—really two plans, an estate plan (death plan) and a lifetime plan (LP). The LP lays the groundwork for beating the estate tax.
The best LP is asset based. There are four types of assets:
• Qualified funds (i.e., in a 401(k), IRA or the like)
• Investments (stocks/bonds/cash/real estate—owned alone or with others—and similar assets)
This article zeros in on investments.
Let’s call our tax hero Joe, who has accumulated a variety of investment-type assets worth $12 million. Joe and his wife Mary have three children and six grandchildren. Joe has considerable wealth in all four types of assets. His goals concerning the investment assets:
• Reduce (or eliminate) the potential estate tax
• Reduce income tax on the assets’ income
• Protect the assets from creditors and divorce (ex-in-laws if kids or grandkids get divorced)
• Keep control of the assets
You’ll Flip over FLIPs (Family Limited Partnerships)
No question about it, a FLIP (sometimes more than one) is the weapon of choice to accomplish all of Joe’s goals. FLIPs are so effective that since 1985 all 50 states have adopted the Revised Uniform Limited Partnership Act.
A FLIP is a partnership consisting of one or more voting general partners (i.e., who control management and make investment decisions) and limited partners (receive nonvoting units). Unlike irrevocable trusts, a FLIP is a flexible tool that can be amended if necessary to meet the changing needs of your family or circumstances.