What is one way limited partnerships minimize estate taxes?

Limited partnerships can help minimize estate taxes primarily by utilizing legal frameworks that allow for the transfer of wealth in a strategic manner. In this context, a limited partnership allows the general partner to maintain control over the business operations, while limited partners contribute capital and share in the profits without taking an active role in management.

This structure can facilitate wealth transfer, as interests in the limited partnership can be gifted or transferred to heirs with potentially reduced tax implications. Furthermore, since the value of limited partnership interests might be lower than the value of the assets held by the partnership—due to lack of control or marketability discounts—this can result in lower estate taxes upon the transfer of these interests.

This strategy is particularly effective in estate planning as it allows individuals to pass on wealth to the next generation while potentially reducing the total taxable estate.