An estate-planning framework that owners of start-up businesses might well find worth investigating is the family limited partnership (FLP). Such partnerships act like other limited partnerships, and they provide company owners with a technique for reducing estate and gift taxes while they maintain control of their companies.
"A business owner sets up a family limited partnership, retaining a 2% interest, naming himself general partner, and transferring into it various assets, such as stock or real estate," explains Peter Nussbaum, a partner at M.R. Weiser & Co., an accounting firm in New York City. "One's children are named limited partners, and they own the remaining 98% interest -- subject only to a gift tax."
One caveat: the strategy is simple, but it is inappropriate for certain business structures. In the case of an S corporation, for example, the transition to an FLP is considered a taxable liquidation.