Estate Planning And Partnership Consideration
Estate Planning: How Limited Partnerships Work To Protect You, Your Family and Your Assets
FLiPs (Family Limited Partnerships – These are limited partnerships where the people involved are all related to each other (family members). As it stands, there is no legal classification for FLiPs, and even though the Internal Revenue Service (or IRS) recognizes it as a legal financial instrument in asset protection, it’s done so only as a limited partnership.However, with an estate planning professional, you can learn how this tool can assist you and your family to save taxes and have a guaranteed succession of the assets and investments for your heirs during the probate process. FLiPs and estate planning can keep your family and beneficiaries from paying in a good chunk of money for taxes.
A Look At Conventional Limited Partnership
In conventional limited partnership, there are a minimum of two partners with one person being a limited and another person being a general partner. What are their duties?
1 - General Partner – This person has unrestrained liability and decision-making powers. He/she is responsible for the limited partnership’s legal obligations and debts.
2 - Limited Partner – This person is liable only for the amount of his/her investment and has limited powers to make decisions.
Limited partnerships are produced by statute and need to be registered with the state. They’re recognized as a separate entity and can be taxed as such.
The parents, in this partnership, are both general and limited partners in the beginning. They place structure on the partnership and place any assets they wish to leave their heirs into the FliP. Later on, the parents will gift their limited partnership goods to the children. The premise behind FliPs is to keep hold of a family’s business investments and interests so the parents can bequeath these limited interests to the heirs.
Both Family Limited Partnerships and estate planning can lessen the family tax burden through three things:
- Asset protection
- Estate tax planning benefits
- Federal gift exemption rules
If used correctly, this limited partnerships and estate planning can be very prolific tools in financial planning and asset management. To get the most tax and gift exception benefits FliPs offers, be sure to talk with an estate-planning lawyer and have him/her set it all up so that the FliPs offer are utilized to their full potential.
There are four things you need to make sure of so that the Family Limited Partnership works like you intended.
1 – It needs to be funded and any assets/funds you have needs to be transferred to it to ensure they get considered for the asset protection, gift exemption rules and tax benefits.
2 – The FliP should be maintained properly; if the yearly fees are not paid, the IRS or state will not recognize the FLiP.
3 – It should be organized with functioning agreements that have to be observed or it could be considered insufficient for recognition as a limited partnership according to the law.
4 – Flips must be treated like a business entity, which means personal assets and expenses like a primary residence and home bills cannot be placed inside it.
When it’s used the right way, this partnership and estate planning can give persons extraordinary asset protection and tax advantages. They can be utilized to produce a powerful financial planning strategy that offers excellent income tax benefits for the whole family. To get the most benefits, they can be used in conjunction with other tax saving and asset protection tactics.