Get your kid’s involved in the family business
By Melvin J. Howard
Have you seen your children’s financial future go right down the drain? Or you now have to put off retiring sometime in the future. Maybe you listened to your stockbroker and should have sold instead of holding on. Look in this current economic climate now is the time to involve family members in management of family assets or business interests and it can be done over time, without surrendering total control. Family should be seen as a single economic unit. So start training the next generation in sound financial planning and decision-making. One way to accomplish this is with a Family Limited Partnership, or FLP, as a central component of your estate plan. Parents, children, and even grandchildren can participate as either general or limited partners. Trusts can also be partners, in order to control income distribution, to provide asset protection, or to create a dynasty plan for future generations. There are powerful tax and personal advantages that encourage setting up an integrated estate and asset protection plan. Here is a brief summary of benefits your plan may be designed to provide.
Children and grandchildren can participate in the growth of all partnership assets at income tax rates that are probably lower than your own. Instead of paying income tax, then giving away the “leftovers”, it can make sense to make family members your partners so they directly receive the desired stream of income. Let the government help you out! You get a net reduction of the cost to provide for education and certain other needs of the family. Family members who manage, or who provide services for the partnership are entitled to be paid for their help. This gives you control over the benefits conveyed, the size of partnership distributions, and the manner in which benefits are actually received by each individual participating in the family enterprise.
Health Care Benefit Planning
Limited Partnerships established to operate an active business could be used to provide fringe benefits. The General Partner, usually a corporation, employs family members to perform services for the corporation and the limited partnership. Fringe benefits, deductible to the corporation, such as health care and retirement plans, may then be available to the business for its employees.
Create a Family Enterprise
Use your partnership to train the younger generation and build entrepreneurial spirit. The more you get them involved, the better off they will be. While they may not initially participate in management, you can certainly “pass on” your philosophy and ideals along with the shares you gift or income you distribute. All partners, particularly children, who have an equity stake in family wealth through their partnership interest, take a greater interest in what goes on. This can be a valuable tool in preserving family ideals and welding it into an economic unit. You should seek out a good competent estate attorney before embarking on a estate plan. What is good for your neighbors family might not be good for yours.
