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Creating A Limited Partnership As Part Of Your Estate Plan

On Behalf of | Apr 10, 2024 | Estate Planning

Creating an estate plan is an important task for virtually all adults. Yet, for some individuals, determining how to pass down certain assets can be rather challenging.

For some people in Texas, establishing a limited partnership is an important estate planning step. Learning about this process can help adults to determine if this is a viable option for their situation.

What is a limited partnership?

A limited partnership (LP) in Texas consists of one or more general partners and one or more limited partners. General partners manage the partnership’s daily operations and are personally liable for its debts.

Limited partners contribute capital or property to the partnership and share in its profits. Their role is passive, which limits their liability to the extent of their investment in the partnership. This structure is particularly advantageous for estate planning purposes. It allows for the distribution of assets while maintaining control over their management.

What are the benefits of an LP in estate planning?

By placing assets within a limited partnership, they are protected from creditors and legal claims against individual partners. This layer of protection is beneficial for preserving the estate’s value for future generations.

Transferring assets into a limited partnership can help reduce estate taxes. The value of transferred assets is often discounted due to the limited marketability and lack of control associated with limited partnership interests. This can result in significant tax savings, which increases the estate’s value passed on to heirs.

A partnership agreement can be tailored to fit the specific needs and goals of an estate plan, including provisions for the distribution of income, allocation of profits and losses, and transfer of partnership interests.

An LP is only one estate planning component. Individuals who are actively working on getting an estate plan in place should evaluate all their options. Anyone in this position should ensure they have a legal representative who can explain their options and assist with getting everything set up in an enforceable manner that reflects their needs.