FAMILY LIMITED PARTNERSHIP
UNDERSTANDING
THE FAMILY LIMITED PARTNERSHIP
Structure - A Family Limited Partnership is a partnership among family members, with two classes of partners. Most states, including New York, have adopted the Revised Uniform Limited Partnership Act, which governs Limited Partnerships.
The General Partner - Controls the partnership, with absolute authority to do any and all things in furtherance of the partnership business, including determination of distributions and the buying or selling of assets within the partnership.
The Limited Partner - Is the equity owner of the partnership, but has no voice in the control or operation of the partnership. Limited partners are entitled to a pro rata distribution from the partnership, but cannot be required to contribute additional cash or property to the partnership.
Formation of the Partnership - The partnership is formed by all of the partners signing a limited partnership agreement. A Certificate is filed either in New York (or another state, in which case an application for authority to do business is filed in New York) and the assets are then transferred into the partnership. Thereafter, the partnership is under the control and direction of the general partner.
Taxation - The partnership is a separate taxpayer, although all income and expenses flow through the partnership to the partners pro rata to their ownership interest. Placing assets into the partnership is not a taxable event. Each year the partnership files a partnership return and reports income or losses to each partner on Form K-1.
THE POWER OF
FAMILY LIMITED PARTNERSHIPS
Wealth Preservation - Since 1993, the Internal Revenue Service has allowed assets in a family limited partnership to be evaluated at a discount, often resulting in a reduction of a taxable estate, typically from 25 to 40%. Although recently IRS has challenged discounts, case law indicates that where there is a valid reason for the partnership and with the right mix of assets in the partnership, discounts will continue to be allowed.
Asset Protection - Creditors' rights to pursue assets owned by a Limited Partnership are severely limited, and in many instances a creditor will only be able to obtain a "charging order" against the right to future payments of a partner. The assets in the partnership may be beyond the reach of the creditor, and the payment stream can often be altered or manipulated, resulting in a preservation of assets.
Generational Planning - Because of the two-tiered structure of a limited partnership, with the general partner having complete control over the partnership, it is possible to transfer wealth without giving up control over that wealth. This allows the older generation to transfer ownership to the younger generation, while retaining important control over the assets being transferred.
Estate Planning - Using a Family Limited Partnership allows an estate to be equally distributed among a class of family members, without the need to liquidate or fractionalize an asset. This is especially useful where the estate assets are investment real estate or real estate used for family business purposes.
IS A FAMILY LIMITED PARTNERSHIP
RIGHT FOR YOU?
Do you have a net worth in excess of One Million Dollars?
Is your estate subject to Federal Estate Tax?
Do you or your family own your own business?
Do you own commercial or investment real estate?
Are you the target of a potential lawsuit?
Are your assets at risk to large claims from potential creditors?
Are you considering significant estate planning or gift planning?
OUR FAMILY LIMITED PARTNERSHIP PLAN
We will prepare and file a Certificate of Limited Partnership in a jurisdiction selected for it’s favorable formation laws. We will apply for and obtain authority for the Limited Partnership to do business in the State of New York. With your input we will prepare a Partnership Agreement which is the governing document of the Partnership. All the partners will sign the agreement. The partners will then subscribe to purchase shares of the partnership and we will assist in conveying your assets into the partnership. We will obtain a tax identification number from the Internal Revenue Service, assist you in planning for the preparation of minutes and routine correspondence required of the partnership, and place all the documents in a binder with a summary of the partnership structure and contents, and a glossary of the legal terms used in those documents.
Circular 230 Disclosure: The Internal Revenue Service requires us to advise you that, if this communication or any attachment contains any tax advice, the advice is not intended to be used, and cannot be used, for the purpose of avoiding federal tax penalties or promoting, marketing, or recommending to another party any transaction or matter addressed herein.
