It is not unusual to want to pass along accumulated wealth to loved ones when you are no longer with them. Whether your biggest asset is your home or you have an estate that includes multiple properties, investments, retirement accounts, and other assets, you want to preserve and protect wealth for your heirs.
A family limited partnership (FLP) is one way to do that, and OC Wills & Trust Attorneys is the estate planning firm Orange County, CA, that residents can trust to steer them right.
An FLP trust may serve different purposes. Protecting assets from the threat of claims by creditors, former spouses, and extended family is a big one. It can also offer benefits when it comes to gifting and reducing your taxable estate. FLPs are especially useful for individuals or families with significant assets.
Are you concerned about passing along generational wealth and finding ways to avoid losses to unwanted claims and taxation? The capable and compassionate professionals at OC Wills & Trust Attorneys offer Orange County residents the comprehensive legal advice and estate planning services needed to protect wealth and enjoy peace of mind.
How does an FLP work?
A family limited partnership is a legal entity designed for joint ownership that can be used in two key ways — to start a business or as part of an estate plan. Either way, it requires that two or more family members join.
This entity consists of at least one general partner and at least one limited partner. In the case of an estate planning FLP, the general partner or partners are typically from an older generation, such as grandparents, who have significant assets to pass along to children and grandchildren.
Any of the partners involved may place assets in the FLP, but general partners typically contribute the bulk of assets, whether they place whole assets or shares of assets in the FLP. General partners are responsible for controlling assets, including making decisions about deposits, withdrawals, investments, and other administrative tasks.
Limited partners are shareholders in the FLP but hold no management responsibilities and only limited liability. These family members may vote on the partnership agreement, and they can collect on interest and profits, with the amount depending on their stake.
FLPs are pass-through entities, which means they are not taxed directly. Taxation occurs when income is withdrawn by partners, who are responsible for income tax associated with anything they collect from the FLP.
Benefits of Creating an FLP
There is a range of potential benefits associated with choosing an FLP as a vehicle for estate planning. One of the biggest draws for many families is the option to give tax-free gifts to members.
Placing assets in an FLP also reduces the taxable estate as an FLP is not subject to estate tax. Flexibility in directing assets, retaining control, and protecting future wealth are other advantages.
Annual Gifting and Estate Tax
The way gifting works with an FLP is that you place assets in the entity and then gift shares to partners, or family members. Assets could include investments, real estate like rental properties, and even businesses.
By gifting shares to limited partners, you essentially give them dividends and other profits proportional to their stake in the FLP. Any assets in the FLP are excluded from your estate, meaning they will not be subject to estate tax at the time of your death.
Asset Control and Flexibility
As a general partner directing an FLP, you can elect to give yourself a share of profits or set an annual fixed salary. This ensures you control how the assets are managed, and you can continue to benefit from them during your lifetime.
Provisions can be put in place to appoint a new general partner in the event of your death, or you might choose to dissolve the FLP. This legal structure can be customized in various ways to suit your family’s needs and your wishes for passing on wealth to loved ones.
Create and Protect Future Wealth
Like some trust structures, an FLP can help protect assets against outside threats like lawsuits and claims from creditors, former spouses, and even certain family members, if that is your wish.
It also offers a range of potential tax advantages to help preserve and pass along wealth. If you want to continue to manage assets yourself, an FLP offers the ability to do so.
Asset Protection Strategies Tailored to Your Needs
If your estate is sizable and you are considering strategies for preserving generational wealth, succession planning for family businesses, and maintaining control over assets during your lifetime, family limited partnerships are a great option to explore.
The capable and experienced lawyers at OC Wills & Trust Attorneys are committed to offering the legal guidance, support, and estate planning services Orange County, CA, residents need to make informed decisions about their family’s future. Contact us to schedule a complimentary consultation and create a personalized estate plan.
