Doctors: Don't Lose $3.6M to Estate Taxes
Why Family Limited Partnerships are doctors' hidden estate planning weapon
Imagine this.
You work hard - picking up 7 overnight shifts in a row, seeing patients back-to-back with a full bladder, investing wisely, paying your taxes, and doing everything by the book. Over time, your net worth grows to $20 million. Wohoo!
Now picture this: if you passed away today, the government could take $2m+ from your estate - just like that.
Would that make you upset?
The Estate Tax Reality
The estate and gift tax exemption is historically high right now:
$14m per person (it was $5.49m in 2017)
$28m per married couple ($10.98m in 2017)
That’s generous, but here’s the problem: anything about those limits quickly gets taxed at 40%. So, if your wealth trajectory is heading towards (or beyond) those numbers, tax-smart estate planning isn’t optional - it’s essential. Wealthy families know this and put plans in place early.
Why Family Limited Partnership Matter
One of the sharpest tools in the estate planning toolbox is the Family Limited Partnership (FLP).
When structured and managed correctly, an FLP can
Reduce estate and gift taxes through valuation discounts
Transfer wealth to your kids - while you keep control
Protect assets from creditors
But be warned: FLPs are a hot button for the IRS. They scrutinize those arrangements closely, especially when advanced strategies are used to minimize tax burdens - even legally. Do them right, or risk getting audited!
How It Works
An FLP is just what it sounds like: a partnership among family members.
General partner (you): own 1-2% but controls 100%.
Limited partners (kids): Own 98-98% but have no control.
That means you can shift ownership of assets to your kids without handing over the keys to the golden castle.
The Gifting Magic
Here’s where things get interesting.
This year, you (and your spouse) can gift $19,000 each ($38,000 combined) per child without touching your lifetime exemption ($13.99m for 2025). Over time, that adds up.
And then comes the kicker: valuation discounts!
Because limited partnership interest are hard to sell and don’t come with control, appraisers apply discounts.
So a $25,000 interest might be valued at only $19,000 for gift tax purposes. Translation: you can move more wealth under the radar of the annual exclusion.
How to Set It Up
Form the entity: Work with an experienced estate attorney to draft a detailed partnership agreement and register the FLP.
Transfer assets: Move in real estate, brokerage accounts, or business interests.
Gift interests: Begin transferring limited partner shares to heirs.
Apply discounts: Obtain a qualified appraisal each year to support valuation discounts.
Retain control: Even if kids own 99%, you still manage everything as general partner.
How the Huntrix family uses an FLP (2025 rules)
Example: Dr. Huntrix (age 50) has four children. He forms an FLP and begins gifting limited partner interests each year to his children.
Each year, he transfers LP interests with an economic value around $25,000 per child, but a qualified appraisal applies a 24% discount, reducing the gift‑tax value to $19,000.
His $100,000/year “economic” transfers fit under the annual exclusion: ~$3 million transferred in 30 years.
If the value of LP interests triples to ~$9 million, the potential estate tax avoided could be ~40% × $9m = $3.6m — assuming formalities are respected and appraisals hold up.
IRS Red Flags
Three common mistakes that can blow up the FLP.
No business purpose: You must have a reason beyond taxes, such as an asset protection, central management, and educating family members.
Ignoring formalities: Keep records, hold annual meetings, maintain separate finances. Treat it like a real business
Retained benefit: If you personally use FLP assets (e.g., living in an FLP-owned house rent-free), the IRS can crush the FLP and pull all assets back into your taxable estate.
Final Thoughts
Think about it - you worked decades to build your castle. Why let the government take a massive bit out of it when smarter planning could keep it in your family?
A FLP isn’t just at tax move - it’s a legacy move. It’s how the wealthy protect what they’ve built, teach the next generation responsibility, and keep control while passing wealth forward.
If your trajectory points to exceeding today’s exemption limits, don’t wait.
The earlier you act, the move options you’ll have.
Start planning today- so tomorrow, your legacy belongs to your family, not the IRS.
And if you’re in California looking for someone who really knows estate planning inside and out, I recommend Klaus Gottlieb, MD, JD, LLM (Tax, pending) - an estate attorney with deep expertise and a practical, client-first approach.
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