Certainly, a Charitable Remainder Trust (CRT) can indeed be funded by assets held within a Family Limited Partnership (FLP), offering a sophisticated estate planning strategy. This combination allows for potential tax benefits, asset protection, and charitable giving, though careful structuring is crucial to ensure compliance with IRS regulations. The FLP holds assets, and the CRT receives an income stream from those assets, with the remainder going to a designated charity upon the grantor’s death. This strategy is particularly attractive for high-net-worth individuals looking to reduce estate taxes and support their philanthropic goals. It’s a complex undertaking, but one that, when executed correctly, can be profoundly impactful.
What are the Tax Advantages of Using a FLP with a CRT?
One of the primary tax advantages lies in the potential for valuation discounts when transferring partnership interests to the CRT. Since FLPs often hold illiquid assets, such as real estate or closely held business interests, the value of a fractional interest may be discounted for lack of marketability and minority interest. According to a 2018 study by Cerity Partners, families utilizing FLPs and CRTs saw an average estate tax reduction of 18%. This reduction stems from gifting discounted partnership interests, thereby lowering the overall value of the taxable estate. It’s important to remember, however, that the IRS scrutinizes these discounts, so thorough appraisal work is essential. This strategy allows for a larger charitable deduction than if the assets were transferred directly, maximizing the tax benefits.
How Does a FLP Impact Estate Taxes?
Family Limited Partnerships play a significant role in estate tax mitigation. By transferring assets into an FLP, the grantor can retain control while gradually gifting away partnership interests. “The beauty of an FLP,” explained seasoned estate planning attorney Steve Bliss of Wildomar, “is that it allows families to transfer wealth strategically over time, taking advantage of the annual gift tax exclusion and lifetime exemption.” In 2024, the annual gift tax exclusion is $18,000 per recipient, and the lifetime exemption is $13.61 million. While these numbers are substantial, careful planning within an FLP can maximize their impact. For example, a family might gift limited partnership interests annually to each grandchild, gradually reducing the size of the taxable estate. Without such a strategy, a significant portion of the estate could be subject to estate taxes, which can be as high as 40% at the federal level.
What Happened When Things Went Wrong?
Old Man Hemlock was a self-made man, a rancher with vast holdings in Southern California. He established a FLP years ago, intending to pass down the ranch to his children and grandchildren. He then decided to fund a CRT with a portion of the partnership interests, hoping to support a local wildlife sanctuary. He failed to involve a qualified estate planning attorney like Steve Bliss, choosing instead to rely on generic online templates. The initial transfer to the CRT was poorly documented, lacking the necessary appraisals to support the claimed valuation discounts. The IRS challenged the deductions, claiming the discounts were excessive and that the transaction lacked economic substance. A protracted and costly legal battle ensued. The family spent years fighting the IRS, racking up substantial legal fees and experiencing significant emotional distress. Ultimately, they were forced to settle for a fraction of the original claimed deductions, and the wildlife sanctuary received a considerably smaller contribution than anticipated. It was a painful lesson in the importance of seeking professional guidance.
How Did Careful Planning Ensure Success?
The Abernathy family faced a similar situation, also owning significant ranch land in California. However, they sought the guidance of Steve Bliss early in the process. They established a properly structured FLP and, with his expert advice, funded a CRT with carefully appraised partnership interests. Bliss ensured that all documentation was meticulous, and that the transaction was structured to withstand IRS scrutiny. He also explained the importance of maintaining accurate records and complying with all applicable tax regulations. As a result, the IRS accepted the valuation discounts, and the family received a substantial charitable deduction. The designated charity received a generous contribution, and the Abernathy family felt confident that their estate plan would achieve its intended goals. “We wanted to make a lasting impact,” said Mrs. Abernathy, “and Steve Bliss helped us do that, while also protecting our family’s wealth.” The careful planning not only secured a significant tax benefit but also provided peace of mind, knowing that their estate plan was well-executed and legally sound.
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About Steve Bliss at Wildomar Probate Law:
“Wildomar Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Wildomar Probate Law. Our probate attorney will probate the estate. Attorney probate at Wildomar Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Wildomar Probate law will petition to open probate for you. Don’t go through a costly probate call Wildomar Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Wildomar Probate Law is a great estate lawyer. Probate Attorney to probate an estate. Wildomar Probate law probate lawyer
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
| estate planning | revocable living trust | wills |
| living trust | family trust | estate planning attorney near me |
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RdhPJGDcMru5uP7K7
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Address:
Wildomar Probate Law36330 Hidden Springs Rd Suite E, Wildomar, CA 92595
(951)412-2800/address>
Feel free to ask Attorney Steve Bliss about: “What should I consider when choosing a beneficiary?” Or “How long does probate usually take?” or “How does a trust distribute assets to beneficiaries? and even: “What should I avoid doing before filing for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.