By Jennifer Reuting

If you’ve ever heard of a family limited partnership, then you may think that you have an idea of what a family limited liability company is all about. Ironically, there is no such legal entity as a family limited partnership or a family LLC.

If you were to call up your secretary of state and ask how to go about forming one, you’d hear a long pause at the end of the line. In short, these entities are just regular limited partnerships and limited liability companies that are specifically structured for holding family assets for asset protection and estate planning purposes.

The limited partnership used to be the entity of choice for estate planning purposes; however, because the LLC is so flexible and has since developed enough case law to make it relatively reliable and predictable if you are taken to court, the LLC is quickly encroaching on the limited partnership’s domain.

The strength of the LLC for estate planning purposes is its capability to create a firm separation between the operating members and the silent members of the business. Unlike in a corporation, an ownership interest in an LLC does not entitle the interest holder (the member) to any management of the affairs and day-to-day operations of the company.

This separation enables you to substantially reduce estate taxes by discounting the value of the membership interests in order to increase the amount of the assets allowed to be transferred tax free during your lifetime.