Effective estate planning can include asset protection for professionals and business owners, because wealth preservation is part of the equation. In this post, we will look at the family limited partnership (FLP), which can be a very effective asset protection structure.
Control Without Ownership
As the name would indicate, the participants in an FLP must be members of the same family. If you establish a partnership, you would be the general partner, and family members that you add would be limited partners.
The objective behind any asset protection strategy will be control without direct ownership, and this is what you accomplish when you establish a family limited partnership. As the general partner, you would have sole decision-making authority, regardless of your ownership interest.
Let’s look at a hypothetical situation to demonstrate the family limited partnership strategy in action.
David is an accountant, and he earns additional income from two shopping centers that he has purchased. He is concerned about potential legal exposure because commercial rental properties are in the high risk category, and he would be viewed as a “deep pocket target.”
As a response, he places each shopping center into a separate family limited partnership. He conveys his bank and brokerage accounts, which are low risk assets, into another family limited partnership, and his home goes into its own FLP.
Someone is injured at one of the shopping centers, and their attorney is going to file a personal injury suit. She finds out that the shopping center is owned by a family limited partnership, and the bank is holding a mortgage.
All of the personal property that is owned by the partners would be out of the litigant’s reach, and this would also apply to the assets are held by the other family limited partnerships. The attorney would realize there is nothing to take, so they would probably settle with the insurance company.
David’s accounting firm is a professional corporation, and all the stock is owned by a separate family limited partnership. If he is personally sued, the corporation could stop paying his salary and distribute the profits to the family limited partnership.
Estate Tax Efficiency
The federal estate tax is a major factor for high net worth families because it carries a 40 percent maximum rate. It is applicable on the portion of an estate that exceeds the credit or exclusion, and in 2021, the exclusion is $11.7 million.
Family limited partnerships give members the ability to transfer assets to one another at a tax discount, and this is another advantage. This will often involve taking advantage of the $15,000 per person, per year gift tax exclusion.
Access Our Free Worksheet
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This simple but effective worksheet has been carefully prepared to provide you with a more thorough understanding of this important process.
The worksheet is free, and you can get your copy if you head over to our worksheet access page and follow the simple instructions.
Need Help Now?
At some point, you will decide that the learning part is over and it is time to work with an attorney to put a plan in place. If that time is now, we would be more than glad to help.
As you can see from this post, there are things to consider along the way to preserve your wealth, and there are different ways to construct your legacy plan. Personalized attention is key, and this is exactly what you will receive when you choose our firm.
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