Asset Protection Tools
Family Limited Partnerships (FLP)
The Internal Revenue Service has been attacking FLP's, and when forming your
FLP, there should be a business interest, such as an existing family business,
or using realty interests as a business, or gas and oil interests, etc.
FLP's offer several benefits from decreasing the value of your estate for
estate tax purposes, and protecting your assets from litigation. You can also
gift limited partnership interest and receive significant discounts in their
value for gift tax purposes.
Every limited partnership has a general partner, and it is our recommendation
that the structure of your Limited Partnership have a corporate or a Limited
Liability Company (LLC) as a General Partner.
The General Partner (GP)
Your LLC would serve as the General Partner of the FLP. Members of the LLC
would own interests in the LLC. While ownership is flexible, it should provide
for management succession in the event of death or other occurrence.
There should be a member's agreement covering the affairs of the LLC. In
addition to appointing managing members during your lifetime, it would provide
in the event of involuntary transfer such as death, mental incapacity, divorce
or bankruptcy - that other members could purchase the interests or transfer
them to heirs, thus retaining ownership in the hands of your select group.
Thus, control remains in your hands during your lifetime.
The GP can charge a management fee for managing the assets of the FLP. It can
and probably should hire you and your children as employees and, and as
grandchildren attain employable age, they should also be hired to establish
their participation in fringe and pension benefits provided by the LLC, which
you as the majority interest - holding member of the LLC would control.
An Intentionally Defective Grantor Trust (IDIT) could own the GP/LLC. This does
not change your taxable income, while enabling the LLC to collect management
fees from the Family Limited Partnership to pay salaries and provide fringe
benefits such as a medical reimbursement plan and a pension plan for both you
and other employees.
Gifting
Limited Partnership interests in FLP's are excellent property to give to
selected recipients. $12,000 per year or $24,000 from husband and wife can be
given each year under present tax rules without gift tax. The Limited
Partnership interests are discounted because they lack marketability and
control, thus a $12,000 gift could be worth almost $20,000. Since you retain
control during your lifetime, you can control the benefits which accrue to the
limited partnership interests.
The Limited Partnership
Requires documentation as to values of assets gifted to the Partnership and an
annual appraisal is a necessity. The Partnership may be domiciled in a state
other than your resident state, which may create favorable state tax
consequences as well as asset protection enhancement. It is important to form
and document your FLP properly. We can refer you to an Estate Planning Attorney
who is experienced in the use of FLP's.
Results
-
Limited Partnership assets are substantially discounted for estate tax
Purposes.
-
Assets are substantially protected from litigation and divorce.
-
Gifts of partnership interest do not dilute control.
-
Control passes on to the interest-holding members of the GP.
Contact The Pension Professionals of Florida today
to determine how best to protect your assets.
|
