Estate planning in Pennsylvania can be challenging, and one of the reasons has to do with taxes. How can you leave property and assets to your loved ones and children without burdening them with excessively high taxes which devalue the amount of money or property you’re leaving? Moreover, how can you retain control over what you leave, ensuring your wishes are respected and your property is distributed as you would like?
For many families, one solution is a family limited partnership (FLP). This legal instrument allows you to preserve family businesses and assets as well as property for your loved ones. It allows you to retain control over what you have now while reducing the tax burden your loved ones will have to face later.
How a Family Limited Partnership Works in Pennsylvania
An FLP works very simply. You set up a partnership by working with a family limited partnership attorney in Berks County, PA or your community. You then add assets, businesses and property to the partnership. These assets and businesses now belong to the partnership. At this point, you can gift interest in the limited partnership to children as well as other beneficiaries. You (and potentially your spouse) remain general partners in the partnership, meaning you control the assets and the property.
The advantage of an FLP is that it allows you maximum control as well as full protection. The interest you gift to your family members has no value in and of itself. The gifts of interest you make cannot be sold, traded, given away or used to control or make decisions about the assets in the partnership. It is only when you pass on that the assets in the partnership become accessible to your family members gifted with interest in the partnership.
There are also considerable tax advantages to an FLP. Since interest in the partnership is not valuable and marketable (it can’t be sold or traded), it is valued at a discount for tax purposes. Therefore, after your passing, your beneficiaries pay less in taxes through an FLP than they would if you pass the same assets to them directly.
Why You Need a Family Limited Partnerships Attorney in Reading, PA
While an FLP can be a way to protect your loved ones from excessive estate taxes while also exerting control over how your property is distributed, it’s also possible to run into issues with IRS and probate courts. In order to take advantage of tax benefits, your FLP must work as a genuine partnership for business purposes. It must be operated like a business — with meetings, the correct paperwork and the right tax filings.
Not surprisingly, running a partnership can be quite complex. A family limited partnership attorney in Reading, PA can not only help you set up an FLP, but they can also ensure you understand how to follow all the rules so the IRS is less likely to challenge the validity of the entity. In addition, an attorney can help you decide whether an FLP or other estate planning tools will be the most appropriate for your family and your needs.
If you’d like to speak to an estate planning or family limited partnership attorney today, contact Miller Law Group. Through our offices in Reading, Pennsylvania, we’re proud to have helped families across the Reading area, Berks County and other parts of Pennsylvania with their probate and estate planning needs. Contact us today for your consultation to discuss whether FLPs might be a solution for you.