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| 11271 Ventura Blvd. |
| Suite 473 |
| Studio City, CA 91604 |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Warner Center Towers |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Watt Plaza |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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| Fashion Island |
| Phone: 877-479-7970 |
| Fax: 888-509-8864 |
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Asset Protection
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One of the important functions of estate planning is to protect income and assets from creditor claims and tax collection. In concert with federal and state laws that exempt certain types of property from creditor claims, taxation, or both, there are numerous estate planning tools that may be used to shield assets from future creditors and reduce estate or income taxation.
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Family Limited Partnerships
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Some families try to protect their assets by using a family limited partnership (FLP). FLPs afford family asset protection while allowing a family to retain control over them. FLPs operate similar to traditional limited partnerships with the parents acting as General Partners and the children acting as Limited Partners. General partners manage the partnership assets, make investment decisions, share in the FLP income, and are responsible for the FLP debt. Limited partners have an ownership interest in the FLP and share in income generated by the FLP, but they have little or no control over FLP activities and are responsible for the FLP debt only to the extent of her or his ownership interest.
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FLPs are designed to reduce estate and gift taxes by taking advantage of the following:
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- [Valuation Discounts. Interests in FLPs are generally not marketable (that is, interests in FLPs cannot be converted easily to cash at a known market price). Thus, a discount for lack of marketability (DLOM) is typically appropriate, and a DLOM often significantly reduces an FLP’s value for estate tax purposes. A minority discount may also be available to reduce the valuation of an FLP interest given to a limited partner who has only a noncontrolling interest in the FLP.]
- [Annual Gift Tax Exclusion and Unified Credit. Under the annual gift tax exclusion, gifts of an individual’s FLP interests up to a certain dollar amount, to different recipients, and within the same year are exempt from the federal gift tax. Similarly, under the unified estate-and-gift tax credit (also called the unified credit or applicable exclusion), estates are exempt from the federal transfer tax up to a certain dollar amount.]
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Because valuation discounts reduce the estate and gift tax value of an FLP, the benefits of the annual gift tax exclusion and the unified credit are greater for assets transferred through the FLP than for assets transferred outside the FLP.
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Shielding Assets from Creditors
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A properly structured FLP or other limited liability entity may also provide protection from creditors; however, there are limitations with respect to the extent of asset protection that this type of planning can provide. These limitations vary by state and by type of entity.
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Assets owned by a trust, foundation, or other entity are generally not subject to claims against its beneficiaries. In addition, placing assets into an asset protection entity can remove those assets from a person’s estate tax estate.
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Taking steps to protect your assets from creditor claims, the availability of valuation discounts to reduce the estate or gift tax value of your FLP, and strategic use of the annual gift tax exclusion and the unified credit can result in significant preservation of your assets.
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If you are ready to plan your estate, contact us at 877-479-7970, or e-mail us at info@law-thomas.com, to arrange for a confidential complimentary consultation.
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Q: What is a will?
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A: A will is a written legal document with instructions for distributing an individual's assets after his or her death. A will must be formally executed as required by state law to be legally valid and enforceable.
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Q: How can a person change his or her will?
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A: A will is typically valid and effective until it is revoked, destroyed, or invalidated by writing a new will. Alterations to an existing will, such as crossing out language or adding a new provision, do not usually meet the legal requirements for executing a valid will and do not affect the terms of an existing will; however, changes or additions to an existing will can be made by codicil. A codicil is a document executed in compliance with applicable state law that modifies an existing will or codicil.
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 How Much Estate Tax Will You Pay?
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This estate tax calculator adds up many different types of assets to get an estimated estate tax figure for your current estate.
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Social Security Administration Retirement Planner
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The federal Social Security Administration provides retirement planning and disability benefit information from this Web site.
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