A limited partnership combines family assets into a single entity, allowing shares to be distributed according to the creator’s wishes. It can include various assets, including businesses and real estate, and can be used to minimize estate tax. The shares are owned by family members and can be donated over time, reducing the estate tax burden. Limited partnerships offer control not found in other estate planning vehicles.
A limited partnership is a type of legal arrangement that combines the assets of a family into a single entity. Each family member can then receive shares in the company, according to the wishes of the person creating the trust. Limited partnerships are often used if there is a family business that will need to be divided upon the death of the founder or founders. They are also used as a way to minimize estate tax when passing a business or other assets to the next or subsequent generations.
Various types of assets can be held in a limited partnership. In addition to a business, such partnerships can contain real estate, investments, and virtually any other type of business. A limited liability company, sometimes referred to as a limited liability company, can make the division of illiquid assets much easier. It prevents a family from selling assets such as a business if some heirs want to keep the business and others don’t.
Unlike a trust, the shares in a limited partnership are owned by family members. Trust shares can be donated to children and grandchildren over time. If these shares are allocated within the limits of the Gift Tax Act, the limited partnership becomes a very effective way to reduce the estate tax burden at the time of death.
If an entrepreneur creates a limited partnership, it can contain the business and other assets that he owns. The trust can have general partners and limited partners. The general partners can control the assets in the trust and buy and sell shares of the trust. Limited members cannot. The business owner can offer trust shares to their children over time. The fair market value of the trust shares is used to determine whether the shares are subject to gift tax. Since the shares are illiquid, their fair market value may be less than the aggregate value of the assets in the trust, which results in a tax advantage for the recipients of the share.
Setting up a limited partnership allows individuals who have significant assets to dispose of those assets so that they can be easily passed on to their heirs. The trust can be set up so that control of the assets does not pass to the next generation until the person who created the trust dies. This gives limited partnerships a degree of control not found in other estate planning vehicles such as irrevocable trusts.
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