MLPs typically produce steady cash flows over the long term. They also offer tax benefits, as limited partners are only taxed when they receive distributions. Because the quarterly dividends are treated as a return of capital, capital gains tax is deferred until the limited partner’s units are sold.
This means that MLPs are an advantage in estate planning. When a limited partner gifts their units to a beneficiary, no taxes are paid at that point, as the units have not been sold.
The key disadvantage of investing in MLPs is that doing so can be complicated from an accounting and tax perspective. Each limited partner is responsible for paying their share of the MLP’s income taxes and may also be responsible for paying taxes on partnership income.