As many people in New York City may agree, estate planning needs differ from person to person. For some, a will and a power of attorney are sufficient while for others, trusts may be the next estate planning tool. However, for more complex estates, something more than a will and a trust may be necessary, especially if there is a business at stake.
What is a Family Limited Partnership?
A Family Limited Partnership, or FLP, is a partnership that follows strict guidelines in order to minimize the taxable value of the estate. By creating an FLP, a person can not only preserve wealth but also be able to transfer assets into it, including real property.
According to New York law, two or more family members can create the FLP by signing an agreement that includes the names of general and limited partners and also the stipulations per which the FLP will be operated. The New York Department of State needs to issue a Certificate of Limited Partnership in order to formalize the FLP and the partners need to publish the same in two newspapers, which will be designated by the county clerk.
How does an FLP function?
General partners in an FLP own the majority of the business. They operate the business and are also responsible for monetary investments and transactions. In exchange, they may or may not receive a management fee from the profits earned by the FLP. The limited partners usually do not manage the business but they buy shares of the FLP. In exchange, they earn interests and dividends from the profits that are earned by the FLP.
It is also possible to give away shares to other family members. That is, if shares are given away annually, the FLPs overall tax value reduces. However, there are limits on tax-free gifting. For individuals, at present, it is $15,000 and for married couple, it is $30,000. It is important to note that the general partners reserve the right to put restrictions on how a limited partner uses the profits that are earned from gifted shares.
Learn more about FLPs in New York
An FLP may be an effective estate planning tool for many existing and prospective business owners in New York City. To know more about whether an FLP fits your estate planning needs, please visit our law firm’s webpage on FLPs. After all, it takes a lot of effort to make sure that one’s life-long efforts at wealth creation are not wasted due to lack of planning.