Family Partnerships Can Provide a Valuable Estate Planning Tool for Asset Protection
March 19, 2015
Asset protection constitutes one of the most valuable benefits derived from estate plan. Your estate plan can provide an effective way to protect your property from creditors and judgments and to minimize tax liabilities. An unanticipated personal injury judgment could endanger a valuable nest-egg like home equity, savings or investments designed to secure retirement and to provide financial security to family members if you pass away. If you are a successful business owner, your business or professional practice also can be placed at-risk without taking adequate asset protection measures.
Wichita estate planning lawyer J. Joseph Weber frequently hears from small business owners who express concerns that they provide a visible and appealing target of lawsuits from a broad range of parties. Government entities, business competitors, business creditors and even former employees can constitute a cause of business liability. If there is a downturn in business, personal guarantees on loans, lines of credit, commercial leases can all threaten your financial security. Individuals with commercial real estate investments can face other financial threats like lawsuits from those injured on the premises, disputes over real estate transactions and commercial tenant lawsuits.
A family partnership provides an estate planning tool that can provide valuable asset protection benefits. One common way that people protect their small business is through the use of a family partnership. In most cases, a limited partnership structure is used, which includes both general and limited partners. General partners are fully exposed to liability for the debts and liabilities of the partnership while also exercising the power to manage business and administrative matters related to operation of the business. Limited partners are protected from personal liability for the debts of the partnership, but they also cannot participate in the day-to-day operation of the business.
Family partnerships offer a convenient and effective estate planning tool for holding the assets of a family within a unified structure. These assets, including investments and savings accounts, can be efficiently managed and controlled through use of a family partnership. This estate planning device provides a way for adult children to participate in decisions involving the family business.
One of the most valuable aspects of a family partnership is that it permits the transfer of partial ownership of assets to younger family members and children without relinquishing the authority to exercise management or control over the assets. This estate planning approach also can reduce tax liabilities because assets can be transferred from family members in higher tax brackets to those in lower tax brackets. As marginal tax rates increase for higher earning taxpayers, shifting income to lower earning taxpayers can yield substantial tax benefits. If the value of an estate exceeds the exemption for estate tax, the transfer of income to other family members also can mitigate or eliminate estate tax liability.
A family partnership also provides an effective protection from judgments and settlements in civil lawsuits. Assets within the partnership cannot be seized to enforce debts of other partners. Depending on the law of your state, the creditor might be limited to a charging order personal to the partner who owes the debts. In this situation, creditors are limited to enforcing civil lawsuit judgments and settlements against distributions made to the partner subject to the judgment or settlement.
If you have questions about estate planning or asset protection, we welcome the opportunity to talk to you and answer your questions. We invite you to call the Weber Law Office or to submit an inquiry form through this website to schedule your initial consultation.