California Family Limited Partnership and LLCs Lawyer
Family limited partnerships are a subset of limited partnerships. They are frequently referred to as "family" limited partnerships or FLPs in estate planning. Limited liability companies, commonly referred to as LLCs, are another form of business entity commonly used in estate planning. In estate planning these two entities provide both non-tax advantages and indirect tax benefits.
Laing Law Offices advises and represents clients in all their estate planning needs, including family limited partnerships and limited liability companies. Contact our office to find out more.
Non-Tax Benefits: These benefits mainly include liability protection and retention of donor control and management over partially gifted assets. Limited partnerships have two types of members: General Partners and Limited Partners. In a limited partnership, including an estate planning FLP, only the General Partner has unlimited liability. The General Partner is also the only partner of the FLP with authority to manage the FLP and its assets, which can include businesses and real property. The liability of Limited Partners is limited to the dollar value of their interests in the FLP, and no Limited Partner is entitled to manage the FLP or its assets.
Multiple-member LLCs afford greater liability protection than FLPs because the liability of each member of the LLC, including the LLC manager, is limited to the dollar value of his or her interest in the LLC. It is possible to form a single member LLC; in California, however, a single member LLC does not offer liability protection to its single member.
So, limited liability and retention of management and control are the primary non-tax benefits of FLPs and LLCs. When they are properly set up and utilized, they permit parents to gift assets to the next generation, train the next generation to manage the property, and retain control of the asset, potentially, until death.
Tax Benefits: FLPs and LLCs taxed as partnerships have only one level of tax, so their earnings are not taxed twice like those of some corporations. Discount rates for lack of control or ownership of a minority interest are usually available, and can increase the amount that parents can gift to their children without incurring gift tax. This discount accelerates gifting and increases the rate of removal of appreciating assets from the estate of the parent, thereby lowering exposure of the parent's estate to estate and gift taxes and taxes on generation skipping transfers.
Different Allocations of Profits: FLPs must allocate profits to partners in accordance with their respective partnership ownership interests. For example, a Limited Partner who owns a 20% partnership interest must be allocated 20% of the profits of the FLP. On the other hand, an LLC can generally allocate profits independently of member percentage ownership interests. For example, in an LLC, a 20% owner could be allocated 35% of LLC profits.
When utilized, FLPs and LLCs are coordinated with trusts and wills to obtain estate planning results that are extremely difficult to obtain without them. FLPs and LLCs are not appropriate or necessary for many estate plans. However, for some estate plans, they are essential and useful, especially to provide training of successor family member managers and to preserve long term family ownership and control of assets and businesses, including by restricting transfers of FLP or LLC interests with rights of first refusal.
At Laing Law Offices we will work with you and with your accountant and other advisors to create the proper estate plan for you and your assets, including family limited partnerships (FLPs) and limited liability companies (LLCs) where necessary. Contact us to discuss your options.
LAING LAW OFFICES
100 Larkspur Landing Circle, Suite 110
Larkspur, Ca 94939
T: (415) 461-3133
F: (415) 461-4022
At Laing Law Offices, we serve clients in Larkspur, Corte Madera, San Rafael, Mill Valley, Sausalito, San Francisco, Santa Rosa, Petaluma, Novato, and communities throughout the Bay Area, including those located in Marin County, San Francisco County, Sonoma County, Alameda County, and Contra Costa County, California.
