Understanding The Benefits Of A Family Limited Partnership
Estate planning helps you significantly while you are alive in a number of ways. Establishing your living will, power of attorneys and a trust can give you peace of mind knowing that if you become incapacitated while alive, you have expressed your wishes for medical treatment, authorized trusted agents to act in your stead for your business affairs and named a trustee to ensure your assets within your trust are managed responsibly.
Another meaningful part of estate planning is addressing tax planning matters, which could include establishing a family limited partnership (FLP). While the sky is the limit for types of business projects a family could pool their resources for, there are strict guidelines for the FLP meant to minimize the value of a taxable estate. An FLP may create a means for a person to preserve their wealth by transferring assets, including real estate into their FLP.
Who Can Create A Family Limited Partnership?
Two or more family members may complete a partnership agreement, which will include the name of the FLP, the names of general partners and limited partners as well as stipulations for operating the limited partnership. The general partner will file a Certificate of Limited Partnership with New York’s Department of State then publish the same in two newspapers designated by the county clerk.
General partners will own the larger share of the business and will manage and operate the business, oversee investments and cash transactions. The partnership agreement may include a provision for the general partners to earn a management fee from the FLP’s profits.
Limited partners usually do not have management duties but will buy shares of the FLP. In exchange for the “purchase” of shares, they earn profits such as dividends and interest.
Shares may also be given away to family members. Annual gifting of FLP interests can reduce an estate’s overall tax value. Individuals and couples have limits on tax-free gifting. The current amount is $15,000 for individuals and $30,000 for married couples, but this could change in the future. It is best to consult with an experienced estate planning attorney to get the most current information.
General partners can set limits on the limited partners’ use of profits from gifted shares in the partnership agreement. For example, the partnership agreement may state that gifted shares must be held for educational purposes.
Learn How An FLP Could Benefit Your Estate
Call the law firm of McGarry & Simon to arrange for a complimentary consultation. If you prefer, you may email attorney William A. Simon through his secure website to initiate a consultation for all your estate planning needs.