Talk to your CPA. This is not legal advice. The rules are differenct across state lines.
In general, FLP's are a little more complex and require more administrative work. With that, FLPs have benefits. You can accomplish the goal of lowering estate taxes with both entities.
If it is a single asset with one owner, an LLC will likely provide the most flexibility. If you have several family members as owners and want to protect multiple assets, an FLP is likely better. Again, your CPA will know your situation best. Here are a few hints and list of differences and benefits of FLP's and LLC's
- For the two types of entities, dissolution rules and distrubtion rights are different.
- You have flexiblity in making distributions with an FLP, where LLC distributions must be made in proportion with ownership.
- In an FLP, the General Partner (GP) is responsible for managing the business.
- In an LLC, management of the entity is determined by the founding members and can be members or outsiders.
- LLC's protect all members' liability while the general partner in an FLP will have unlimited liabilty for the partnership's debts.
- Both qualify for gift tax exclusion and the lifetime estate and gift tax exclusion.
- FLP and LLC entities are both pass through entities for tax purposes.
My understanding is that in most states, there is more case law and precedent for FLP's than LLCs. This might be important when discounting the value of small ownership share when gifting to your heirs.
Talk it over with your accountant and lawyer. Good luck.