Could My Family Benefit from a Family Limited Partnership?
In these partnerships, there is at least one “general partner,” who retains general partnership interest. This individual can add family members as limited partners. General partners must have an income proportional to their share in the company. This arrangement differs from regular partnerships in several ways, especially since familial partners have a greater liability than a regular partner. Any family member can be included as long as he/she has a legitimate role in the company. Minors can be added if there is someone to control the interests of the minor.
The Advantages of Family Limited Partnerships
Since these partnerships allow for limited control, it is possible to withhold power until partners prove their capabilities. Then general partners can bestow more power progressively, which creates a systematic transference of responsibility.
Family limited partnerships have decisive economic gains. Partnerships minimize estate liability since some of the company’s assets are removed from the general partner’s control. Similarly, these partnerships reduce estate tax. Because some assets have already been transferred to the beneficiaries, they are thereby excluded from the estate when the general partner dies.
These partnerships also fall under the gift tax exclusion. Individuals can enjoy an exclusion of up to $10,000 each year, while married partners can declare up to $20,000. It is even possible to maximize benefits with minority discounts if the gift is a minority interest.
Overall, since a family limited partnership spreads out the assets to a business, the total cost of taxes for the family is likely to go down. However, it should be remembered that for partners under the age of 14, certain “kiddie tax” rules will apply.
How to Start Family Limited Partnerships
Most people start family limited partnerships by establishing general and limited partnerships. Once these partnerships are established, it is possible to then start giving limited partnerships to other family members. This sharing of membership can be increased or decreased over time.
While there are many advantages to a family limited partnership, such arrangements must be entered into carefully in order to comply with all legal regulations. It is always important to consult a legal or tax advisor before undertaking such a venture.