Keeping It All in the Family!

All in the Family!

By David A. Kauwe, CLU, ChFC, LUTCF, RFC, 
Associate with Consultus, LLC

Do you have a Family Business that you would like to:

♦ Centralize and Simplify Management.

♦ Preserve and Pass Family Wealth to members of Younger Generations by Minimizing Gift and Estate taxes.

♦ Protect Assets against Creditors from a Limited Partner.

♦ Provide for Successor Ownership in a family business, while Maintaining Control until they’re “Ready”.

♦ Provide for Plan Flexibility which allows for Changes in Circumstances.

A “Family Limited Partnership” allows all the aforementioned features without having to be irrevocable such as many trusts have to be to get the maximum benefits.

In addition, this structure allows the ownership of the family business to be transferred much quicker than would normally be possible saving the potential estate and gift taxes that would have had to have been paid.

For example,

Let’s say Jim and Sally operate a family farm worth $2,800,000.  They have 2 children in their 20’s and a son in his 30’s.  They set up a Family Limited Partnership and make a capital contribution of the farm.  In exchange for their contribution, they receive 100 units of ownership.  Each unit is worth then $28,000.  2 units are General Partnership Units and 98 are Limited Partnership Units.

Using two IRS recognized valuation discounts, the “Lack of Marketability” and the “Minority Interest” Discounts let’s say these discounts equaled 50%.  Each Unit would then be valued at $14,000.  They could then gift 2 units per child per year.  So in 17 years all 98 units would have been transferred to the children with no gift tax implications and they did not even have to touch their 5.43 million Federal Unified Credit Exemption that they have available as of 2015.  Had they not utilized this strategy, it would have take 34 years to do so.

Now because Jim and Sally own the 2 General Partnership Units, they maintain control over the farm in the day to day management and operations, until they desire to give control over to their children. 

Now if one of their children’s spouses became estranged and divorced their child, the assets of the Farm would not be subject to any liability that could arise from that situation since that child owns only limited partnership units.

So Asset Protection, Transfer of Estate with Minimized Estate Tax Consequences, Maintaining Control of the Operations and Management.  These and much more are excellent reasons to look into setting up a Family Limited Partnership so you can keep it, “All in the Family!”

David A. Kauwe CLU ChFC LUTCF RFC is an Associate with Consultus LLC, a Financial and Estate Planning Firm located in Durham, NC. dave@hawaiiandaves.com or at (919) 698-8832 cell.