Monday, January 14, 2008

Definition For The Day

Family Limited Partnership -- A Family Limited Partnership is a limited partnership whose interests are owned by members of the same family. By this arrangement, gift and estate taxes may be reduced , though owners will not enjoy the freedom of ownership or transferability of other ownership vehicles.

So here is an example. A family owns an office building worth $10 million if sold as one unit. A family limited partnership is formed to own the building. Each of 10 family members own a 10 percent interest. Because of restrictions imposed by the partnership, the sale of a single unit to an outsider would bring no more than $500,000. When a family member died, the unit was valued at $500,000. This amount is less than the federal estate tax exemption, so there is no estate tax. Had there not been a family limited partnership, the share would have been valued at $1 million, and the estate tax would have been about $150,000.

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