In 2018, federal estate taxes generated about $23 billion in tax revenue. The federal estate tax often amounts to double taxation, which puts an unfair burden on family-owned businesses and farms. Fortunately, the family limited partnership (FLP) serves as a powerful estate planning tool that enables the transfer of business ownership from one generation to the next in a smooth and tax-efficient way.
If you are ready to create a family limited partnership (FLP), I can provide you with the detailed guidance and advice you need to efficiently and legally set up the transfer of your business to the FLP. As an experienced business law attorney, I will help preserve your family business and protect your legacy. Katz Business Law proudly serves clients throughout Granite Bay, California, and surrounding communities of Folsom, Roseville, Rocklin, and Auburn.
In recent years, family limited partnerships (FLP) have become an increasingly popular family strategy for both estate planning and asset protection. A family limited partnership can be described as a partnership agreement that exists between the business owners and their family members.
There are two types of partnership interests involved in a family limited partnership:
General Partner: The general partners, usually the business owners, have the responsibility of making key decisions regarding the management of the FLP. Additionally, because they have unlimited liability, the General Partners should be in a separate entity, usually a Limited Liability Company (LLC).
Limited Partner: The limited partners do not have any say regarding the management and investment decisions of the FLP. Accordingly, they will generally have only limited liability.
There are several advantages of an FLP including:
Taxation: An FLP offers substantial estate tax-saving benefits. It is structured to take advantage of the Internal Revenue Services (IRS) annual gift tax exclusion, and the discount recognized for gifts of fractional interests. Furthermore, any future increases in the value of an asset placed in an FLP stays in the FLP rather than being included in the parent's estate.
Agreement: The FLP's structure enables the business owners to maintain control and continue running the business in their capacity as general partners. This means that they will continue their role making key decisions regarding the management of the business.
Limited Creditors and Partners: In the FLP, spouses, children, and grandchildren hold limited partnership interests. Hence, creditors cannot gain control of these interests without the owners' consent. Likewise, creditors can't force the FLP to distribute cash to the partners.
Estate Planning: An FLP is an invaluable estate planning tool. It enables the transfer of the business, real estate, and other assets to future generations while preserving control and saving taxes.
Disadvantages of using the family limited partnership as an estate planning tool may include:
General partners have unlimited liability and could be at risk. They may be exposed to potential liability involving the partnership. For this reason, the general partners will usually be a limited liability entity such as an LLC.
There are some restrictions on the types of assets transferred into the FLP.
Spouses, children, and grandchildren may be exposed to future tax liability, however, this can be minimized through strategic management of the FLP.
Transferring FLP ownership to children under 18 years of age will require careful planning.
Setting up the FLP can be complex. It’s important to consult an experienced business attorney for proper guidance.
FLPs can be established to allow tax-efficient transfers of the family business. If you are interested in creating a family limited partnership, hiring a knowledgeable business law attorney is crucial for proper guidance.
At Katz Business Law, I have dedicated my career to providing strong representation and legal counsel in business law and estate planning-related matters. As your attorney, I can help you:
Draft the FLP agreement and any other associated trust documents
Effectively create the FLP under California law
File all the necessary forms and required documentation with the appropriate state agencies
Transfer title to all assets contributed to the FLP
Your business is your life and family legacy. Let me help you protect it.
A family limited partnership remains a powerful estate planning tool for a smooth and tax-efficient transfer of the family business from one generation to the next. Contact Katz Business Law today to schedule a free one-on-one consultation. I can provide detailed legal guidance and help you navigate key decisions. I represent clients throughout Granite Bay, Folsom, Roseville, Rocklin, and Auburn, California.