Saving on taxes is one of the reasons that many New Jersey residents seek out an estate plan. Through careful and well thought out estate planning, it is possible to greatly reduce -- or even eliminate -- income taxes as well as estate and inheritance taxes. Determining which option will work best for an individual depends on his or her current circumstances and future needs.
For individuals who desire to keep control over their assets while making sure they pass on to the children may consider a family limited partnership (FLP). An FLP allows older family members to maintain the ability to make decisions while passing on their wealth to younger family members. This is done through establishing general and limited partners. The general partners, which do not have to have a majority percentage, make all of the decisions regarding the assets. Limited partners receive distributions, either as gifts during life or after a general partner's death but have no say in how the assets are managed.
Assets are not actually transferred to limited partners. Instead, they receive partnership interests in the FLP. FLPs also allow for the discounting of assets in order to reduce or eliminate estate taxes. For instance, an asset valued at $1 million may be discounted to $600,000, assuming a 40 percent discount. This significantly lowers the value of the asset for tax purposes, which ultimately benefits everyone involved in the FLP.
An FLP is only one estate planning option available to New Jersey residents. Someone with knowledge of the different options available can review an individual's particular circumstances and devise an estate plan that will optimize the value of an estate while minimizing the tax ramifications. This can ensure that more of the person's assets are available for the benefit of heirs and beneficiaries.
Source: Forbes, How To Protect Your Assets Without Giving Up Control, Brian Luster and Steven Abernathy, March 18, 2014