Palm Springs Family Limited Partnerships Attorney

Palm Springs Family Limited Partnerships Attorney

If you own a family business, multiple real estate properties, or significant cash assets, you may be concerned about what will happen to your assets after you pass away. Generally, the original partners in a family limited partnership are married couples who’d like to pass the partnership on to the next generation. Forming a Family Limited Partnership (FLP) can effectively protect your family’s wealth while providing significant estate and income tax savings advantages. 

Family-limited partnerships can hold and protect your family's assets when used as part of a comprehensive estate planning strategy. If you are interested in a tax-efficient way to pass certain assets to the next generation in your family, a family limited partnership could be helpful. Palm Springs attorney Christopher Heritage can help you review your assets and goals and develop a thorough strategy to protect your interests and assets. Contact Heritage Legal, PC, today to schedule your initial consultation. 

How to Form a Family Limited Partnership in California

There are two main types of business partnerships - general and limited. Limited partners’ finances are shielded from legal judgments concerning the company. In exchange, the limited partners lose the power of the company. The legal structure of a limited family partnership is essentially a limited partnership that requires all of the partners to be family members. 

Family limited partnerships are usually greeted by married couples who transfer assets into the FLP. The married spouses often serve as general partners and may grant limited partnership interests to their children of up to 99 percent of the family limited partnership’s assets. When the assets are transferred into the partnership, they are removed from the general partners' estates, reducing future estate taxes. The parents serving as general partners retain control of the partnership assets even though they legally own as little as just 1 percent of the value of the assets in the partnership. 

The Benefits of Forming a Family Limited Partnership

Family limited partnerships are most often used as part of business succession planning and an important part of a comprehensive estate plan for high-net-worth individuals. A key benefit of a family limited partnership is preserving a family business and other high-value assets for future generations while reducing taxes. Families can protect “safe assets,” such as life insurance policies and bank and brokerage accounts. Limited partners can receive distributions from the FLP after it’s been formed.

Asset Protection

Asset protection is one of the most important benefits of creating an FLP. The assets transferred into the partnership are shielded from the potential creditors of limited partners. The interests generated by the assets in the FLP can be divided among family members, who may own different amounts depending on how the shares are divided. 

Transferring Ownership of a Family Business Gradually

Partners can transfer ownership of a family business to the next generation while allowing the senior generation to keep conducting operations and mentoring the younger owners. When family business owners pass away unexpectedly without a business succession plan, the transfer of ownership can be chaotic. The younger generation may have needed more time to be ready to operate the business's day-to-day operations. 

There could be cash-flow challenges that threaten the profitability of the business. Using a family limited partnership allows a smoother transfer to the younger generation while allowing the older generation to retain control. As the general partner, you can leverage the FLP as a legal means to transfer more of your assets to your beneficiaries while maintaining control of the assets, including the family business. 

Estate Tax Efficiency

You will reduce your estate when you create a family limited partnership and transfer your assets into the partnership. The value of each asset you give away will decrease your overall taxable estate. As a result, it will also decrease any tax your heirs would need to pay upon death. You can use the annual gift tax exclusion to make ownership gifts to your heirs, so they may not have to pay any gift tax on the transfer of interest. 

Limited partners don’t have the legal authority to control or direct the day-to-day operations of the limited FLP. As a result, they will receive a minority discount that will reduce the value of the interest they’ve received from you. The value of their interests may be far less than the corresponding value of the partnership assets, potentially reducing their tax burden. Additionally, they may receive additional discounts based on the lack of marketability of their interest in the FLP. 

The Benefits of Working with an Experienced Attorney

Due to the significant tax benefits of creating an FLP, it’s not surprising that the IRS has increased its scrutiny of them. It’s crucial that a skilled attorney properly establishes your legal document. An attorney can also help you ensure that the FLP is correctly operated. For example, you will be more likely to avoid or survive an IRS challenge if you have a legitimate reason to create the FLP that isn’t related to decreasing tax liability. 

An attorney can help you decide which assets to keep in the FLP. Generally, it’s best to avoid transferring personal property, such as your vehicles and home, into the FLP. As the FLP must be a legitimate business entity, you should avoid using its assets to pay for personal expenses. Finally, an attorney can help you ensure that the assets you transfer into the FLP have been properly appraised to increase your chances of withstanding IRS scrutiny. 

Contact an Experienced Palm Springs Family Limited Partnership Attorney

If you live in Palm Springs or the surrounding area and you’ve been thinking about what will happen to your family’s assets after you pass, attorney Christopher Heritage of Heritage Legal is here to help. After learning more about your business, goals, and what you’d like to happen to your business after you’re gone, he will help you develop an effective succession plan. Forming a family limited partnership may be a viable solution for you and your business. Contact Heritage Legal today to learn more about your legal options and how a family limited partnership attorney can help you. 

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