The Use of Family Limited Partnerships in Florida Estate Planning
If you’ve never heard of a Family Limited Partnership, or FLP, it is one option to help preserve your family business for future generations. It can also offer a way to help shelter your assets and reduce your overall gift and estate taxes. If you want to know more about family limited partnerships and whether they are right for your particular situation, it’s important to speak with a knowledgeable West Palm Beach estate planning attorney.
What is a Family Limited Partnership?
Family limited partnerships are created to manage your family’s assets. The general partner and the limited partners are all related here — there are no friends or outside partners. Family, as defined for tax purposes, will include spouses, children, parents, grandparents, lineal descendants like children and grandchildren, and any trusts that were created on behalf of a family member.
There is also something called a family limited liability company, or FLLC. It is quite similar to an FLP, but the liability levels differ. An FLLC extends liability to all partners, no matter whether they are general or limited partners. With an FLP, the general partners are the ones who have direct liability.
How Family Limited Partnerships Work
Interests in an FLP can be divided between family members, all of whom may own entirely different amounts. With FLPs, limited partners can take distributions while enjoying some tax benefits, but they do not take part in any day-to-day operations of the FLP. In most cases, the FLP may be set up by a married couple who place their assets in the FLP and then act as the partnership’s general partners. Limited partnership interests can be given to their children. This can help save on future estate taxes since the assets are now removed from the general partners’ estates.
Benefits to Having a Family Limited Partnership
There are a number of potential benefits with a family limited partnership. Some of these include:
- It allows a younger generation to own the business while the senior generation can still conduct operations and help mentor the younger family members to take over the business.
- It is easier to transfer assets upon a partner’s death.
- This is a simplified method of estate planning that could lead to a reduction in estate taxes.
- The partners may have potential income tax benefits.
- An FLP’s general partner continues to control assets.
- An FLP’s limited partners are protected from a majority of creditor claims.
Potential Disadvantages to the Family Limited Partnership
Every type of estate planning option has potential disadvantages. Several of these include:
- An FLP’s general partner could find themselves vulnerable to claims or judgments from creditors.
- Partners in an FLP must be 18 years old or older. Parents or guardians can control a child’s FLP interest, but this is not necessarily the preferred method of transferring assets to a minor.
- There could be a possible capital gains issue.
It’s imperative that you adhere to the formalities of setting up an FLP and ensure it’s properly maintained, otherwise you’re putting an FLP’s benefit at risk. You cannot commingle FLP and personal assets otherwise the IRS could potentially disregard any asset and tax protection benefits.
Contact a West Palm Beach Estate Planning Attorney
If you have questions on how an FLP works, contact the Law Offices of Larry E. Bray, P.A., today at 561-571-8970 to schedule an initial consultation.