By: Phillip B. Rarick, Miami Asset Protection Attorney
The Family Limited Partnership, (the full legal name is family limited liability limited partnership (FLLLP) is designed to accomplish asset protection, tax and non-tax goals.
First, it provides protection from claims of creditors for the partnership assets. Creditors of a partner can only obtain a charging order entitling them to a share of partnership distributions. They cannot become partners and cannot participate in the management of the partnership, unless the other partners elect them to partnership.
Second, it shifts assets to and among the other partners, in proportion to their respective partnership interests. Thus, for example, if you contribute all of the assets to the partnership and retain a 2 percent general partnership interest and give a 49 percent limited interest to each of the two other partners, you will have made gifts to them of 98 percent of the assets of the partnership. You will, however, have retained managerial control over the partnership as you will be the general partner.
Third, it removes the other partners’ share of the partnership assets from your estate and that of your spouse, for federal estate tax purposes. Your estate will include, of course, the value of the stock of the general partner that you retain, and the value of any limited or general partnership interests you retain personally.
Fourth, it shifts the income tax on the income from partnership assets and activities to the other partners, in proportion to their partnership interests, and away from you.
Fifth, it assures that the partnership assets are held in a single fund, and managed by the general partner.
Sixth, all of your transfers of partnership interests to the other partners are treated as a gift by you to the other partners for federal gift tax purposes. Your gifts of partnership interests to the other partners qualify for the gift tax annual exclusion ($14,000 in 2013). Gifts above this figure will require you to use up part of your $1 million gift tax exemption or pay gift tax.
Seventh, you and your spouse can elect to gift-split with respect to your gifts of partnership interests. This allows you to use two gift tax annual exclusions and two gift tax exemptions to shelter these gifts from current tax. Gift splitting requires that you file a current gift tax return to report the gifts, even if no tax is due.
Eighth, it vests the control and management of the partnership assets in the general partner. The limited partners have only very limited rights to be involved with the management of the partnership, and so their partnership interests are usually less marketable than outright ownership of the underlying assets, and they are usually valued, for estate and gift tax purposes, with significant valuation discounts that range from 30-35%.
For more information contact attorney Phil Rarick, Miami asset protection attorney, at (305) 556-5209.
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an attorney that is experienced in Florida asset protection planning law. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.