Understanding Family Limited Partnerships in New York
A Family Limited Partnership (FLP) is a legal entity that allows family members to manage a business together. It provides several benefits including asset protection, tax savings, and succession planning. A qualified estate planning attorney, specifically a limited partnership lawyer, can help you derive the full benefit from this powerful tool.
An FLP allows parents to transfer real property and securities to their children. These assets are not subject to federal estate taxes. This strategy can save significant amounts of tax dollars for heirs. In addition, it can allow a larger gift than would otherwise be allowed under the annual exclusion.
The parents become the general partners in an FLP and they give their children limited partnership interests. These limited partnership interests are less valuable than the underlying assets in the FLP and are therefore discounted below the market value of the underlying assets. The IRS values these limited partnership interests as a present interest, which qualifies for the annual gift tax exclusion. As a result, the parents can gift these limited partnership interests to their children without having to pay any gift taxes.
When an FLP is properly established, it protects the assets from creditors. This is because the law considers that partnership assets belong to the FLP itself, rather than to individual family members. That means that a family member’s personal liabilities won’t expose partnership assets to judgment creditors.
However, it is important to note that there are some limitations on this asset protection. For example, if a family member is involved in a lawsuit and is awarded a judgment against them, a creditor can obtain a “charging order” against the distributive shares that the family member would receive from an FLP. However, a charging order is only effective against the distribution of future proceeds, not the current or past assets that are held by the FLP.
This is why it is essential to have an experienced limited partnership lawyer who understands this strategy and the laws that govern its operation in each jurisdiction. A limited partnership lawyer can help you set up an FLP and draft a comprehensive partnership agreement. They can also assist you with filing the necessary paperwork with the state where you want to establish your FLP.
Understanding Family Limited Partnerships in New York
An FLP can provide many benefits to families and is an effective way to reduce estate taxes and preserve wealth. However, it is important to remember that the law can change, so you need to have an experienced limited partnership lawyer to make sure that your FLP is properly implemented. Contact our office today to speak with a knowledgeable limited partnership lawyer about how an FLP can benefit you.
Exploring the Dynamics of Family Limited Partnerships in NY
A Family Limited Partnership (FLP) is a flexible planning vehicle that allows families to transfer assets and wealth to future generations in a controlled and tax-efficient manner. The FLP can also help reduce estate taxes and provide for favorable valuation discounts in the transfer of business interests. Consulting with a limited partnership lawyer can ensure that these benefits are fully realized.
Unlike general partnerships, which can operate under their individual names, FLPs must have a distinctive business name. When selecting a business name, it is important to choose one that complies with state guidelines and sounds good when spoken. In addition, the name must be available for use and not include words that refer to other types of businesses (like "corporation" or "incorporated"), words that may mislead customers or the public, or that are inappropriate for a business. A limited partnership lawyer can assist in selecting a compliant and effective name.
A Family Limited Partnership will need to register for sales and use tax and must obtain a federal tax ID number (EIN), known as an Employer Identification Number ("EIN"), which is required in order to open a bank account or to hire employees. The EIN is the business equivalent of a social security number and is obtained for free through the IRS. FLPs must also pay a variety of other state and local taxes and filing requirements, depending on the type of goods or services they offer. Assistance from a limited partnership lawyer can simplify this process.
For example, if an FLP is engaged in the retail sale of goods or food, it must obtain a sales tax license by using Form DTF-17 and filing it with the Department of Finance. The FLP must then display the license where its merchandise is sold. In addition, the FLP must file quarterly and annual sales tax returns online using the NYS Sales Tax Web File system. A limited partnership lawyer can guide you through these requirements to ensure compliance.
In addition, if the FLP is a service business, it must obtain workers’ compensation insurance and unemployment insurance coverage. These policies can be obtained from private insurers or through the New York State Workers' Compensation Board and Department of Labor. Consulting a limited partnership lawyer can help you understand and fulfill these insurance obligations.
Exploring the Dynamics of Family Limited Partnerships in NY provides a detailed overview of the various issues and challenges that can arise when setting up an FLP. It is recommended that families consult a trusted financial professional to assist them in exploring the options for their specific situation. If you are considering forming an FLP, you should also consider hiring a business formation service and consulting a limited partnership lawyer to handle the paperwork for you. To learn more, contact a New York limited partnership lawyer today to schedule an initial consultation.
How Legal Counsel Supports Family Limited Partnerships in New York
A Family Limited Partnership (FLP) is a versatile tool for preserving and protecting assets, planning an estate, and mitigating taxes for affluent families. While establishing and managing an FLP requires careful consideration, professional guidance from a limited partnership lawyer, and compliance with legal and tax rules, it can provide significant benefits for long-term wealth transfer, asset protection, and family business continuity.
Asset Protection
One of the most important benefits of an FLP is its ability to protect family assets from creditors. Because limited partners are passive ownership stakeholders with no control over management decisions, their interest in the partnership is largely off-limits to any creditor seeking satisfaction of a judgment against them. In contrast, general partners maintain complete control over the distribution of distributive shares to limited partners, and they can choose to withhold payments to satisfy a judgment. Thus, a creditor can only acquire a charging order against a debtor partner’s interests in the FLP, and even this may not provide much relief.
FLPs are especially effective for protecting personal assets, such as homes and cars, that have no connection to a family’s business operations. For example, you can give your car and home to your FLP, then transfer the equity in those assets to your spouse or children. This strategy is not foolproof, but it can significantly reduce the likelihood that a creditor will successfully recover against your family’s investments. A limited partnership lawyer can provide the necessary guidance to ensure these protections are correctly implemented.
Succession Planning
Another major advantage of an FLP is that it allows parents to gradually transfer ownership and management responsibilities to the next generation while maintaining control as general partners. This approach minimizes potential conflicts between siblings and ensures that the family’s vision and objectives are upheld by future generations. A limited partnership lawyer can assist in structuring these transfers to minimize conflict and maximize benefits.
Finally, an FLP can reduce estate taxes by enabling parents to transfer their assets into the entity before their deaths. This can take advantage of the IRS gift and estate tax exemption, known as Byrum Section 2036(b), which reduces the taxable value of transferred property.
To reap these benefits, an FLP must be established and managed according to strict legal and tax rules. Therefore, it is advisable to seek the advice of an experienced limited partnership lawyer who understands how to create and manage this type of partnership. A limited partnership lawyer can help you with establishing and managing an FLP to achieve your wealth preservation, estate planning, and asset protection goals.
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