If you are worried about planning for the succession of your business, you may want to consider the Family Limited Partnership.
Why would you consider such a thing if you are planning your estate? What are the benefits of the FLP? Rather, what is the FLP?
The family limited partnership is a partnership run by members of the same family. It operates like any partnership but has some distinct provisions.
For starters, it's a limited partnership. This means that the partnership agreement can provide for different classes of partners, including general partners and limited partners.
The general partner has the responsibility to manage investments. The general partner also bears most of the risk. The limited partners benefit from limited liability, but they are also not part of the overall decision-making process of the family limited partnership.
As with any partnership, the tax flows down to the partners. So the partnership as a whole isn't taxed but the partners are taxed on their share of the partnership income.
Generally, a senior member of the family will put assets into the family limited partnership in return for a status as a part general partner and part limited partner. This status gets handed down to a younger family member, along with the assets that go with the status.
A family limited partnership can lessen the blow of estate tax while allowing a family member to hand down the assets to the younger generation. But like any business structure, it has to be organized properly.
These documents aren't easy to draft, especially considering the tax ramifications of a family limited partnership. If you're interested in setting up a family limited partnership, it's wise to locate a good estate planner.