There are many different legal devices that are used in the field of estate planning. This is why you should discuss everything in detail with a licensed estate planning lawyer. You may be able to benefit from certain courses of action that you may not even be aware of as a layperson.
One legal device that you could overlook is the family limited partnership. Many people who are looking for asset protection and transfer tax efficiency will create family limited partnerships. With a family limited partnership you have a joint business venture consisting of members of the same family. In a family limited partnership there are general partners, and there are limited partners.
Let’s say that you want to create a family limited partnership. You act as the general partner, and you make your children the limited partners.
Assets that you conveyed into the partnership are protected from creditors. We typically think of creditors as credit card companies or mortgage companies. Assets that have been conveyed into a family limited partnership would be protected from these types of creditors.
However, a broader definition of creditors in this context would include litigants who are suing you. An estranged spouse could also be considered a creditor while divorce settlement negotiations are taking place. A family limited partnership can protect assets from these types of creditors also.
Anyone who is in any line of work could certainly benefit from asset protection because you never know when you will be sued, go through a divorce, or wind up in serious debt. However, there are people in certain walks of life that absolutely must pay attention to asset protection. These are going to include physicians who are vulnerable to malpractice suits. They have deep pockets and they are prime targets for litigious types.
You could actually start multiple family limited partnerships and place different property in each of them to add an extra layer of asset protection.
In addition to the asset protection benefits family limited partnerships can also be useful for people who are seeking estate tax efficiency. Right now the federal estate tax exclusion is $5.25 million. If your assets exceed this amount you are definitely going to want to take steps to gain tax efficiency.
There is a gift tax in place as well, so large gifts that you give to your family could be taxable. If you make family members limited partners in the family limited partnership discounted asset transfers are possible.
This is because the general partners have complete control of the partnership. Shares in the partnership that are gifted to limited partners are not going to be taxable at full value because the limited partners don’t have access to these resources.