West Palm Beach residents may be aware that the current federal gift tax exemption is set to expire at the end of this year. With no clear indication of what will become of the exemption, an increasing number of affluent families are turning to family limited partnerships as an attractive vehicle for achieving estate planning goals. Establishing a partnership this year can help families maximize estate planning opportunities under the current gift tax exemption limit.
One of the most significant benefits of the family limited partnership is that it enables family members to contribute assets to the partnership at a discounted value. The discount accounts for the loss in liquidity of assets once they are restricted from being sold outside the family. A 25 percent discount is not unusual and would allow a family member to contribute roughly $7 million in assets to the partnership without exceeding the current gift tax exemption limit.
A partnership can also serve as a vehicle for maintaining assets within the family bloodline from generation to generation. Although stories abound of relatives feuding over the management of family wealth, family partnerships can succeed in teaching family members how to overcome differences and can serve as a tool to teach wealth management skills to future generations. A strong partnership can keep family members focused on a successful future and avoid disputes and hard feelings over individualized gifts.
A family limited partnership will not be the right choice for every family. In order to withstand IRS scrutiny, the partnership must be formed for a legitimate business purpose and not simply as a mechanism for avoiding estate taxes. Using a family partnership like a personal bank account and treating partnership assets like personal property can also lead to serious tax consequences. Floridians considering establishing a family limited partnership will want to have a good understanding of its proper uses and limitations before making any irreversible decisions.