Current Implications of Partnerships in Estate Planning

Gain an understanding of modern implications of partnerships in estate planning and their effects.

Partnerships (and Limited Liability Companies taxes as partnerships) have become the go-to entity choice among estate planning practitioners for their clients. Whether the entity is to own and run an operating business or a passive investment portfolio, the complete flexibility in design for the financial and governance provisions of the partnership structure allow estate planning attorneys the ability to achieve each family's unique objectives. Corporate structures like S corporations and C corporations have a number of demanding requirements or adverse tax results that limit their usefulness except in specific situations. Along with the flexibility in design, the partnership structure provides a means of an estate freeze for shifting the future growth of the partnership interests to other family members. Additionally, by holding assets and operating businesses inside the partnership structure, creditors of the owner are typically limited to the owner's interest in the partnership and not to the underlying assets. Finally, the new audit rules applicable to partnerships are having a major impact on trust owners of partnership interests. The partnership agreements that have been used in the estate planning context need to be reexamined and likely amended to account for the new rules and the appointment of a partnership representative.