Today, you are a highly successful doctor with your own private practice, a lovely home, maybe an apartment upstate, a beach house, a number of investments and more. However, what about tomorrow? In the event of your death, how much will your children and your wife get? Will your creditors be able to bother your surviving family for the money your business owes them? Will exuberant taxes relieve your family assets or will the taxes erode your savings of a lifetime? Is the thought of an unforeseen death keeping you up at night?
Family Limited Partnerships hold the key to every solution
It looks like Family Limited Partnerships have all the answers you are looking for. It is a beautiful and powerful business finance planning tool. It combines a number of aspects of both business and finance. FLP takes care of personal tax planning, business planning, buy-sell agreements, transfer of family wealth and business succession planning. It is as simple as a legal agreement you can create to make your family members the shareholders of your business and business assets.
FLP has been around for quite a while. Earlier it was the platform for syndicated tax shelter in the 70s. Right now, the FLP is a smart tool in the field of family business ownership that plays a vital role in the estate planning for small family owned businesses. The partnerships the owner defines in the FLP can continue the small business operations for profit. Traditionally, multiple medical clinics and law firms started out as partnerships. Therefore, all small business with more than one owner can become a partnership.
The owners of a business should be a part of the same family as per the FLP rules and requirements. However, they do not have to be equal owners. They may even belong to different classes of ownership. They can be general partners or limited partners in the business. If you are interested in setting up a limited partnership, you should always elect one general partner in the team.
The only way to protect your assets is by sharing them
Unlike the FLP general partners, who have complete liability for debts and actions of their other partners, the FLP limited partners are immune to debts and actions of other partners. In essence, the liability of a limited partner extends to the amount of his or her investment. The FLP protects the limited partners’ assets from partnership creditors. Only the capital investment in the business is open to risk.
Most physicians and business owners become “deep pocket targets” for litigious patients and trouble making negligence lawyers. FLP provides complete protection to the doctor’s assets by law. Since creditors can mean potential litigants, real creditors, displeased business partners or any old rival, it is necessary to opt for a versatile and strong asset protection like the FLP. As per the codification of law, the assets belonging to the limited partnership cannot belong to an individual. Although the owner may have judgment against a partner of the limited partnership, the creditors cannot attack the assets since they are not personal anymore.
The real advantages of an FLP
FLP is a limited partnership where two or more members of the same family can become general and limited partners. More often, the members of the family are from different generations. The general partners’ role in an FLP usually goes to the older members of the family. The general members manage. They can implement all the partnership decisions. It includes buying and selling arrangements, distribution of profits and investment decisions of the partnership business. Limited partners cannot outvote general partners even if they own 99% of the company shares. Here is a brief view of the advantages of an FLP –
- It can help in the transfer of assets between family members and between different generations.
- All the assets of the partnership enjoy protection from estate taxes and personal creditors of limited partners.
- They can also minimize gift taxes involved in the transfer of assets between generations.
- FLP can assist and facilitate family succession.
- It is an efficient way to handle the family wealth of physicians.
You can surely opt for an FLP once you and your family have thought about the following:
- The family is facing potential income tax problems for accumulating wealth.
- The family is facing significant gift tax problems for transferring wealth within the family.
- Older family members are reluctant to give up control of a mainly owned business.
- Older members are not confident about newer generations’ ability to manage business assets.
- The initial owner of the business has creditors, and he does want to expose his assets to lawsuits.
An FLP needs to adhere to the laws of the state your business is in. The process usually takes a lot of legal know-how, experience in financial planning and tax planning. Estate planning for small businesses is essential and should be done under the watchful eye of a professional financial planning expert. A legal expert can tell you what kind of partnership is best for you and which members of your family can become the other limited partners and general partners.
Just drawing up an FLP is not enough. You should also have a backup plan in the event of divergence of interest. One partner may lose his or her interest in the business shares. That can be quite easy to handle during your lifetime, but if that happens after your demise, the situation can quickly turn murky. You need to appoint a neutral attorney, who can advise the partnership and help them make the right decisions to always stay on the right side of the law.
If you want to save the assets you have earned with your hard work over the years, start thinking about estate planning and family limited partnership today. Check out https://beamalife.com/ for a comprehensive view of how an FLP can help a doctor just like you.