Family Limited Partnership
We all know you can count on two things in life: death and taxes. But what happens when those two things happen in the same sentence?
When wealthy individuals pass away, up to 40% of their estate can be taxed. In 2021, this applies to individuals with a net worth exceeding $12 million and married couples whose net worth exceeds $24 million. That means 40% of your hard-earned wealth will be headed to the government instead of your family, if you choose not to protect your estate. A family limited partnership is a tool that can help high-net-worth individuals limit their exposure to the estate tax.
Do I Need to Worry?
Estate tax only affects those who possess significant wealth. Most people do not have the wealth necessary to see any benefit from establishing a family limited partnership. In 2020, there were over 3.3 million deaths in the United States. Of those deaths, there were only 4,100 estate tax returns filed, and only about 1,900 of them were taxable. That means that 99% of the US population does not need to worry about estate taxes. However, if you pass the wealth limit, then a family limited partnership should be in your future.
What Is a Family Limited Partnership?
A family limited partnership (FLP) is a legal arrangement in which family members come together to run a business project. Each member involved owns shares of the project and profits in conjunction with how many shares they hold. By using a family limited partnership, high-net-worth individuals reduce their exposure to the estate tax. Rather than transferring all of your estate to your family in one lump sum at the time of your death, which would put you in the direct path of the estate tax, the goal is to transfer smaller values over time. Using an FLP as part of your estate plan does not remove taxes altogether. However, it significantly reduces the tax rate applied while still giving your family direct control over the value and distribution of your wealth.
Establish Your FLP Today
The limits for the estate tax are set to change in 2026, cutting the minimum wealth in half ($6 million if you are single, $12 million if you are married), which means that more Americans will be affected by the law. Don’t wait to start your FLP. You can transfer $15,000 per person per year tax-free into your FLP (or $60k for married couples with married children), but it still takes time to transfer enough equity to make a meaningful impact on your estate. Contact Linked Accounting to find out how to start your FLP today.
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