Clients frequently come to us knowing they’ll face estate taxes at death that they do not want to pass on to their children, but they are also not ready to transition their wealth and relinquish control over it. Perhaps they want to maintain financial oversight, or they feel their children are not ready for the responsibility of managing their significant wealth.
In these cases, Family Limited Partnerships (FLPs) can be an effective method of maintaining financial control, while transferring wealth out of an estate in a tax-efficient manner.
FLPs are essentially holding companies owned by two or more individuals that have two classes of owners – general partners (the parents) and limited partners (the heirs). In most situations, individuals create and donate assets to an FLP in exchange for general partner and limited partner interests and, over time, will gift those limited partner interests to their children and grandchildren. Due to the lack of control and marketability that limited partners possess, an opportunity arises to transfer these interests to future generations at a substantial discount (ranging from 15-40%) compared to the assets’ actual fair market value. In addition to the discount, one of the most beneficial aspects of an FLP is that the individual “freezes” the value of the gifted assets at the time they were transferred; thus, any future appreciation on the gifted assets escapes the individual’s estate tax when he or she passes.
FLPs can help alleviate some of the common stressors experienced by individuals that are looking to transfer their wealth to future generations. While FLPs are an extremely valuable tool, they can be quite complex to set up, so we believe it is essential to work with skilled financial advisors who understand the complexities of estate and wealth transfer planning. At Bordeaux Wealth Advisors, we prioritize a strong relationship and deep understanding of our clients and their objectives. In coordination with our clients’ estate attorneys, we can model and illustrate wealth transfer solutions that make sense for the family’s situation both financially and personally. To read more about FLPs; check out this BWA case study.
To learn more about Family Limited Partnerships (FLPs) and Bordeaux Wealth Advisors, visit www.bordeauxwealthadvisors.com or call 650-289-1105. We manage the complexities of wealth so you don’t have to.
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