Saturday, June 10, 2000


Partner plan can beat tax

        Problem: You want to maintain control of the family business and generate an income stream for retirement, but still keep a lid on your estate tax bill.

        Strategy: Give away a minority interest in the business, or most of it through a Family Limited Partnership.

        Charlotte A. Dougherty, certified financial planner with Dougherty & Associates in Kenwood, says that both methods allow you to shift ownership to other family members and reduce your taxable estate.

        Giving shares to family members whom you expect to eventually take over is usually best for companies not yet highly appreciated. Because the business could grow faster than estate tax exemptions, you're likely to pay more taxes later, with estate taxes starting at 37 percent to 55 percent.

        You also could discount those shares by 30 percent, recognizing a minority interest may be worth less. That means you could give a stake with face value of $14,285 (discount it 30 percent) and still be under the $10,000 annual exclusion.

        Family Limited Partnerships allow senior family members to keep control of assets that are placed in the partnership, yet gift more than a minority interest.

        For instance, when creating a FLP, you might give away 98 percent of the business to seven family members, while you hold 2 percent as the general partner. As general partner, you maintain control of the business, while the transfer of the limited partnership interest gets a lot of your business' value out of your estate, potentially reducing estate taxes.

        The partnership can be structured so you can shift income among family members, while ensuring that you and your spouse continue to receive salary income.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique strategies or new approaches with the Enquirer and our readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati, 45202 or e-mail


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