How a Family Limited Partnership Can Power an Estate Plan

One challenge faced by family-run businesses involves transitioning both the ownership and operations from one generation to the next. This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing the Family Limited Partnership —  A legal agreement that enables business owners and their heirs to address succession, estate, and tax planning needs, all at once:

Business owners who want family members to inherit their businesses in the future could use FLPs to transfer assets out of their taxable estates during their lifetimes. And to do so, the owners of a valuable business might begin this process many years before they intend to give up operational control.

Estate Tax Threat

The IRS calculates the estate tax due on an individual’s gross taxable estate by adding the value of all owned assets, including a home and a business, and subtracting any applicable exemptions. Even if the taxable estate falls below the current generous federal estate tax exemption level ($13.61 million or $27.22 million for a married couple in 2024), the family might not be entirely out of the woods, especially if they live in a state that has an estate tax or an inheritance tax with a lower exemption amount. Perhaps more concerning, the federal estate tax exemption is scheduled to revert to inflation-adjusted 2017 levels in 2026.

When business owners fail to consider that federal and state estate taxes could be due upon their passing, the funds needed to pay the taxes may not be available, and their heirs may be forced to…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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