Family Limited Partnerships - Good Estate Planning?
Auguest 2, 2004
By Richard Smith, LLB
You may have recently been told that family
limited partnerships (FLPs) are an excellent estate-planning
tool. In short this is true. Should the members of
your family feel that you have sufficient assets to
warrant setting up a limited partnership, you could
possibly save up to 30 per cent (or more) on the value
of the assets in that family limited partnership for
estate tax purposes.
However, FLPs also have other benefits. Using a limited
liability partnership structure like this can be a useful means
of protecting your family's assets from any credit actions. Similarly,
if you are thinking of remarrying, and have children from your previous
marriage, then using FLPs structure can help to protect your children's
future inheritance from any claim your new wife may have.
Family Limited Partnerships - The Downside
Although FLPS can be a very useful tool for families to use in protecting
their assets for the next generation, it does need to be borne-in-mind
that they're not always the best estate-planing tool. The reason
for this is because certain assets cannot be included in the assets
of an FLP. For example, S-corporation securities, qualified plans,
and personal items are not allowed to be included.
In addition, to be of any great benefit, the assets that do qualify
for inclusion in an FLP need to exceed US$1 million - otherwise
other estate-planning vehicles, such as a life insurance trust,
become a more cost effective means of estate-planning. Also, at
an overall cost of over US$100,000 to maintain, an FLP is not necessarily
going to be the cheapest means available of protecting your family's
assets into the next generation.
Indeed, it would appear that the best bet for FLPs are in cases
where you have a fairly affluent patriarch, who has invested most
of his money in real estate, but who does not yet feel ready to
turn over control of his life's savings to a trust. Under these
circumstances, a limited liability partnership may well be just
the thing to protect your family's assets in the future!
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