A family limited partnership is a powerful way to transfer assets while reducing or avoiding gift and estate taxes. Family Limited Partnerships (or Family Limited Liability Companies) can be a beneficial way not only for business owners to transfer control of their companies to their loved ones, but also for those who have substantial wealth of any type to pass that wealth to their loved ones.
While family limited partnerships are a powerful estate planning tool, many people do not understand how to make a partnership work to transfer tax- assets.
Clarity Legal Group can work with you to evaluate your family and financial situation and to understand all of the options available to you for the transfer of your wealth, including the creation of a family limited partnership. We can also provide you with help creating a family limited partnership and transferring an ownership interest in the partnership to loved ones in an appropriate way.
What is a Family Limited Partnership?
A limited partnership is a type of legal relationship in which multiple partners own a company or investments. At least one of the owners is a general partner, who has complete control over the partnership’s assets and complete legal responsibility for the operation of the business or management of those assets.
The limited partners of the family limited partnership do not have any liability for the business or assets owned by the partnership and they do not control the partnership interests. Because the limited partners do not have the authority to make distributions of partnership assets or to manage those assets, the value of their interest is often discounted at the time of transfer.
Family limited partnerships are created so that assets can be transferred without triggering estate or gift taxes. Those who own assets – who will become the general partners – create the family limited partnership and contribute assets to the partnership in exchange for their ownership interest in the partnership. The general partners then give limited partner interests to their heirs or beneficiaries. The limited partnership interests in the family limited partnership can be given directly to the limited partners or can be put into a trust for them.
Should You Create a Family Limited Partnership?
When you create a family limited partnership, fund it with assets and then transfer an interest in the partnership to your loved ones, you reduce your taxable estate. The value of the assets that the partnership owns are largely removed from your taxable estate.
So long as the interests in the partnership that you are give each year to your heirs or beneficiaries do not exceed the annual gift tax exclusion, you will not owe gift tax.
Although you are gifting an interest in the partnership- and thus gifting the assets – to your loved ones, you also benefit from being able to retain continued control of the assets and from being able to control how quickly you transfer interests in the partnership to your family members. You don’t have to worry that you’ll give your assets to your loved one and the assets will end up not being managed properly, causing loss. This means that the family limited partnership is a valuable tool that allows you to continue to manage your assets as you see fit while also taking active steps to ensure your wealth is not lost due to estate tax.
How can Clarity Legal Group Help?
Creating a family limited partnership can be complicated, and you want to ensure that you follow the proper process for creating a partnership, transferring assets, and transferring ownership of interests in the partnership. Clarity Legal Group can help with determining if a Durham family limited partnership is right for you and can help with creating and managing your partnership.