Question: I have been in the automobile parts business for 50 years, and both of my sons have come into the business with me. I own the vast majority of the stock, but the three of us all earn good incomes. All other assets – the house, the bank accounts, and some land – are titled in my name. I am 72 and was recently diagnosed with Parkinson’s Disease. My wife is 68 and in good health. My doctors tell me that I should begin to slow down, but I don’t want to lose control of my business right now. One of my sons has had financial problems and has judgments against him, so I don’t want to transfer any to him. The other son has a shaky marriage, and I don’t want the assets we have worked so hard to acquire to be divided by some divorce court. I want to make sure that my wife is taken care of and that there are funds for my long-term care if I need it. I estimate our total worth to be about $2.5 million. We live in a small town and, when I talked to our lawyer, he could not come up with any plan that would protect the business, make sure my wife and I are taken care of, and help reduce estate taxes. Where can we go to get planning advice and what steps can be taken?

Answer: Because dealing with a closely held business adds a degree of complexity to the estate planning process, you should consult with a lawyer who handles business succession and estate matters and who is familiar with long-term care planning. One way to locate such a person is to contact people you know in larger cities nearby who own similar business to see whom they used to help them in the planning process. In this way, you can assure yourself that you are dealing with an attorney who has experience in this field.

One planning tool that may be suitable to your situation is a Family Limited Partnership (FLP) which can provide economic and other benefits to your family by 1) shifting the value of assets to your sons while reducing taxes, 2) allowing you and your wife to retain control of the assets even after they have been gifted, and 3) protecting the assets from creditors.

In very basic terms, here’s how the FLP works: If you and your wife place all assets except the family home in a family limited partnership, the FLP will own the assets. By retaining control as general partners, you and your wife can continue to enjoy the use of and income from the assets while gifting your FLP interests to your sons over time. Because the FLP interests you and your wife transfer to your sons can not be sold or disposed of and do not carry voting rights, your sons can not interfere with your control of the partnership assets, and third persons can not interfere with their interests. Over time, your sons will receive control of the assets based upon a time line you and your wife establish.

When planned and executed correctly, the partnership interests you gift are subject to valuation discounts because of lack of marketability and control. Depending on the amount of the valuation discounts for lack of control and marketability, you could transfer your entire estate to your sons in a matter of years without incurring any transfer tax liability, while continuing to enjoy the use of their assets for your lives. In addition, the FLP assets are protected from your son’s creditors.

Taking The NextStep: Because of your illness and the potential need for long-term care, your situation is different than many people who decide to use FLP’s, so make sure all issues that concern you are presented to your attorney. Because the FLP is irrevocable, we suggest that before you begin this process, you have the attorney explain in writing exactly how an FLP can work for you and discuss it with your certified public accountant to make sure you understand all of the plusses and minuses. This is an expensive process that requires various appraisals and continuing involvement by your legal counsel.