Suffice it to write, we have all probably heard of or know of a taxpayer who was assessed a huge tax bill or had their personal or business assets seized by the IRS. On the flip side of that, we all probably have heard of or know of a taxpayer who had been assessed or paid very little in taxes.
The Family Limited Partnership (FLP) and Limited Liability Company (LLC) are two such structures commonly employed to reduce or eliminate estate and inheritance taxes. (Easton, 2004). These two structures are not all inclusive. There are other vehicles and strategies used to reduce and eliminate estate and inheritance taxes. In fact, various types of trusts can be used. The most successful case I know of reducing estate and inheritance tax was deployed by Joseph P. Kennedy Sr. According to Boone (2006):
They have sheltered the family fortune in a series of trusts, one which is set up in Fiji. When Joseph P. Kennedy Sr. died on November 18, 1969, his estate was estimated to be worth up to $500 million (well over a billion in current dollars). Yet, the family paid only $134,330 in estate taxes, less than one-half of one percent of the value of the family fortune. Kennedy’s financial disclosure forms show that today much of his wealth is invested in tax-exempt municipal bonds. (p. 2)
When forming an estate plan, there are several things to consider. These are only a few. First, conduct the research. Evidence shows that tax breaks exist. I’m of the opinion that people would take advantage of these tax breaks if they were more informed. Identify the many different tax shelters and tax havens. Study the various trusts, limited partnerships, and limited liability companies. Second, seek help. Consider retaining a competent advisor. It can be an attorney or some other professional. It must be someone with the experience and expertise. Last, but not least, find a good example. Find someone who has successfully implemented a great tax strategy. I was once told, “If you want to be a millionaire, ask a millionaire” (Barge, personal communication, 1994).
References:
Boone, D. A. (2006, Winter). Liberals don’t do as they say: Book exposes Kennedy, Pelosi,
Clinton & others. Boone Report, VII(1). Retrieved April 12, 2007 from http://www.boonereport.com/2006winter/n.html.
Butler, S. (2005, September 1). Court ruling threatens use of Family Limited Partnerships. On Wall Street. Retrieved April 12, 2007 from the Westlaw database.
Easton, R. W. (2004, Jan/Feb). Section 2036 hurdle raised for Family Limited Partnerships. Valuation Strategies,7(2), 4. Retrieved April 8, 2007 from the ProQuest database.
Gale, W. G., Hines, J. R., & Slemrod, J. (2001, p. 24). Rethinking estate and gift taxation. Washington, DC: Brookings Institution Press.
Jennings, M. (2020). Why pay more estate tax than is required? Peer Review.