Family Limited Partnerships (FLPs) in New York: Maintaining Control and Providing Asset Protection for Your Family’s Future
For families with significant assets, particularly family businesses or real estate holdings, planning for the future requires sophisticated strategies that go beyond simple wills. A Family Limited Partnership (FLP) is a powerful estate planning tool that allows you to maintain control over your assets while also providing significant asset protection and tax benefits for your family. In New York, FLPs can be particularly useful for families seeking to preserve their wealth for future generations and protect their assets from creditors, lawsuits, and estate taxes. At Morgan Legal Group, serving New York City and beyond, we provide expert guidance on creating and managing FLPs to help our clients achieve their estate planning goals. This comprehensive guide will explore the key aspects of using FLPs in New York, providing valuable insights into their benefits, requirements, and how they can be integrated into your overall estate plan. An FLP is a useful way to protect what is most important to you.
What is a Family Limited Partnership (FLP)?
A Family Limited Partnership (FLP) is a limited partnership formed between family members for the purpose of managing and protecting assets. The FLP typically consists of two types of partners:
- General Partner(s): The general partner(s) manage the FLP and have unlimited liability for its debts and obligations. The older generation are the initial General Partners.
- Limited Partner(s): The limited partners are typically family members who contribute assets to the FLP and receive limited partnership interests. These partners have limited liability and do not participate in the day-to-day management of the FLP. The younger generation of family members are often named as limited partners.
The general partner(s) typically retain control over the FLP and its assets, while the limited partners receive the economic benefits of ownership. A well managed FLP can be very beneficial for years to come. It is important to carefully select the partners.
Key Benefits of Using FLPs in New York
FLPs offer several key benefits for families in New York:
- Asset Protection: Assets held within the FLP are generally protected from the personal creditors of the limited partners. This can be particularly valuable for individuals in high-risk professions or those concerned about potential lawsuits.
- Estate Tax Reduction: Transfers of limited partnership interests to family members can be made at discounted values, reducing gift and estate taxes.
- Control and Management: The general partner(s) retain control over the FLP and its assets, allowing them to manage the assets according to their wishes.
- Succession Planning: FLPs can facilitate the transfer of ownership of a family business or other assets to the next generation while maintaining family control.
- Family Unity: FLPs can promote family unity by providing a framework for managing assets and making decisions collectively.
These benefits make FLPs an attractive estate planning tool for families with significant assets. However, it’s important to note that FLPs are complex legal structures. Therefore it is essential to be reviewed by professionals with experience in this area.
How Does an FLP Work? A Step-by-Step Guide
Here’s a step-by-step guide to how an FLP works:
- Establish the Partnership: Work with an attorney to create a limited partnership agreement.
- Transfer Assets to the FLP: Transfer assets, such as real estate, business interests, or investments, to the FLP.
- Retain General Partnership Interest: Retain a general partnership interest, giving you control over the FLP.
- Gift Limited Partnership Interests: Gift limited partnership interests to your family members, taking advantage of valuation discounts.
- Manage the FLP: As the general partner, you manage the FLP and its assets.
Each step must be carefully executed to ensure the FLP is properly structured and achieves its intended purpose. With the steps properly executed, this can truly secure the future for your family. It is also a smooth step to have it for generations to come.
Selecting Assets for Your FLP: What Types of Property Are Suitable?
The type of assets you transfer to an FLP can impact its effectiveness. Suitable assets for an FLP typically include:
- Real estate (e.g., commercial properties, rental properties, farms)
- Family businesses
- Marketable securities (e.g., stocks, bonds)
- Intellectual property (e.g., patents, trademarks)
Avoid transferring assets that are likely to be needed for your personal expenses. It is best to avoid the risk that these assets are no longer available when needed most.
Maintaining Control as the General Partner: Management and Decision-Making
As the general partner, you retain control over the FLP and its assets. This allows you to:
- Make investment decisions
- Manage the day-to-day operations of a family business
- Distribute income to the limited partners
The limited partners typically have limited say in the management of the FLP. The GP is the decision making body. The day-to-day actions still fall upon you to complete and be knowledgeable about.
Gift Tax Implications: Maximizing Valuation Discounts
When you gift limited partnership interests to your family members, the transfers are subject to gift tax. However, you can often claim valuation discounts for these gifts, reducing the gift tax value. Common discounts include:
- Lack of Control Discount: Limited partners typically have limited control over the FLP, reducing the value of their interests.
- Lack of Marketability Discount: Limited partnership interests are typically difficult to sell, reducing their value.
These discounts can significantly reduce the gift tax value of the transfers, allowing you to transfer more wealth to your family tax-free. An experienced professional can be a game changer in getting this right.
Asset Protection Benefits: Shielding Assets from Creditors
One of the primary benefits of an FLP is asset protection. Assets held within the FLP are generally protected from the personal creditors of the limited partners. This means that if a limited partner is sued or incurs a debt, their creditors may not be able to reach the assets held within the FLP. This can be particularly valuable for individuals in high-risk professions. A great lawyer can assist you with setting this up and discussing what the risks of the business or assets are.
It’s important to note that FLPs are not foolproof asset protection devices. There are certain exceptions to the asset protection benefits of FLPs, and creditors may be able to reach the assets in certain circumstances. An attorney can further assist. Expert guidance is essential for maximizing asset protection.
Succession Planning: Transferring the Family Business to Future Generations
FLPs can be particularly useful for families who own a family business and want to transfer ownership to the next generation while maintaining family control. By transferring limited partnership interests to your children or grandchildren, you can gradually transfer ownership of the business without disrupting its operations. Succession planning is crucial for the long-term success of a family business. A clear plan ensures a smooth transition.
FLPs also allow you to:
- Retain control over the business as the general partner
- Provide for family members who are not actively involved in the business
- Minimize estate taxes on the transfer of the business
This type of planning can serve as a critical component to business security for years to come. These protections allow for financial safety and security.
Potential Drawbacks and Risks of Using FLPs
While FLPs offer several benefits, it’s important to be aware of the potential drawbacks and risks:
- Complexity: FLPs are complex legal structures that require careful planning and ongoing administration.
- Costs: Establishing and maintaining an FLP can be expensive.
- IRS Scrutiny: FLPs are subject to scrutiny from the IRS, and it’s important to ensure they are properly structured and operated to avoid challenges.
- Loss of Control: While the general partner retains control, the limited partners have certain rights that must be respected.
These drawbacks highlight the importance of working with an experienced attorney. Careful planning can help mitigate these risks.
State-Specific Considerations: New York Family Limited Partnership Law
It’s important to be aware of any state-specific laws that may affect your FLP. New York has its own laws governing limited partnerships, and it’s important to comply with these laws when establishing and operating your FLP. Compliance with state law is essential for validity and enforceability. An experienced attorney understands these state regulations.
Key considerations for New York FLPs:
- Filing requirements with the New York Department of State
- Requirements for maintaining a registered agent in New York
- Potential state and local taxes
These requirements must be met to avoid legal issues. Planning must comply with state laws.
Working with an Experienced Estate Planning Attorney in New York
Creating and managing an FLP can be complex. Therefore, it’s important to work with an experienced estate planning attorney who is knowledgeable about New York law and committed to providing personalized and effective legal services. An attorney can help you:
- Evaluate whether an FLP is right for you
- Structure the FLP to maximize its benefits
- Transfer assets to the FLP properly
- Comply with all applicable laws and regulations
Choose an attorney who specializes in estate planning and has a proven track record of success. Legal expertise is essential for a successful FLP. Do not leave the future to chance. Let a professional help you make the decisions needed.
Securing Your Family’s Future with Morgan Legal Group
At Morgan Legal Group, we understand the importance of protecting your assets and providing for your family’s future. Our experienced attorneys are dedicated to providing personalized and effective legal services to individuals and families throughout New York City and beyond. Contact us today to schedule a consultation and learn more about how we can help you achieve your estate planning goals. Our Google My Business link is here: Morgan Legal Group GMB. Let our firm help you today. We are prepared to assist with Probate, Family Law, Wills and Trusts, Estate Planning, Elder Law and Guardianship.
Morgan Legal Group proudly serves the New York City community including the Bronx, Brooklyn, NYC, Queens, and Staten Island. If you are outside of New York City we also serve Long Island including Suffolk County. As well as Westchester, Ulster County, and Orange County.NY Courts
