Family Business Entities are commonly used in estate plans of families with complex business assets and are an important tool to accomplish the long-term estate, business and tax planning goals of the family.
- Income, gift and estate tax planning and tax savings through valuation discounts
- Centralized management of assets
- Asset protection
- Business succession planning and
- Training the younger generations in management of assets
Most often Limited Partnerships or LLCs are used as estate planning vehicles to achieve valuation discounts for estate and gift tax purposes and limited liability for most or all of the owners. These entities offer the advantage of flow-through income for tax purposes and provide more flexibility in management than other vehicles. Although these are often called “Family Limited Partnerships” or Family Limited Liability Companies”, these terms have no legal significance. It is the secondary advantages of the vehicles that give them these titles.
The typical situation that such vehicles may come into play is where there are significant assets (often exceeding $10 million) that allow the individual to comfortably give away assets that will use all or a significant portion of the client’s applicable tax exclusion amount for gift and estate tax purposes. Tax savings are achieved by valuation discounts and because potential future appreciation is transferred out of the client’s estate. The attorney is the quarterback of the team but a real team of advisers, including an accountant and financial adviser will work through this process to achieve the complicated game plan.
It goes without saying that this type of decision must include a cost vs. benefit analysis that requires the forethought and consideration of cost, complexity and desirability of the end product. As with any such decision, consultation with a competent attorney like Max Alavi, APC at Alavi & Broyles, LLP is the first step.