WHEN DO I NEED A FAMILY LIMITED PARTNERSHIP?
Family Limited Partnerships
What is a Family Limited Partnership? It is a simply a limited partnership that is set up under the law to protect assets and pass them to the next generation. Generally it is part of an estate plan.
When I refer to a Family Limited Partnership (FLP), it could also be a Family Limited Liability Company (FFLC), which is basically the same thing. I am going to use them interchangeably for this purpose today.
With a FLP or FFLC, you are able to pass tremendous amounts of value to your children without having to have that count against the exemption for estate planning purposes. Here’s what I mean. Today, in 2014, the limit is 5.25 million dollars per adult that can be left to the next generation without estate or inheritance tax implications. That is a pretty nice number.
If you have more than 5.2 million dollars in your estate, an FFLC is a way to deal with that. You transfer whatever is of value, maybe it is a business or maybe it is a piece of property, so it is now owned by the Family Limited Partnership. The value can then increase over the years without resulting in an over-limit estate when you pass away.
How? In the beginning, you can gift an interest in that entity to your children so they can receive that asset after it has increased in value. 10, 15 or 20 years from now it may be well over the exemption limit. So whatever that value is can now be passed to the next generation since they are already the owners of the LLC.
Along the way, you can gift them more and more of a portion of the LLC. You base the value of that gift on the current market value less a discount that you are allowed to take under the internal revenue code.
It is a little bit tricky. But if you think you have a business or a property specifically that may really gain a lot of value over the years, setting up a Family Limited Partnership is something for you to think about.
It also allows a degree of insulation for asset protection purposes that a basic estate plan generally doesn’t. If you have potential liabilities in their business that they don’t want to connect to their personal wealth, then FLP or a FFLC is the way to go.
We help you figure that all out and set it up. It’s not all that expensive and it is not hard to run. So let us help you figure it out. Call my office and set up a consultation today. (480) 807-9300.