Family Limited Partnership – Part 3, Legally Mine

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Continuing from the previous post    http://wp.me/p3QR71-2q 

For those of you who missed the first post, this is a series of posts regarding the Family Limited Partnership (see link above) – an entity that Legally Mine advocates in their lectures and presentations.  These are excerpts taken from the book, “The Asset Protection Bible.”

Determining the Percentage of Ownership

 

Ownership interests of a Limited Partnership are generally equal to the percentage of capital contributed to the partnership. For example, if Dale is contributing 20% of the assets to a partnership, he will generally receive a 20% interest in that partnership. After the partnership has been established, Dale may gift away part of his ownership to reduce the size of his estate, bur must stay within IRS guidelines for gifting. When a corporate general partner is used, the Corporation generally receives its interest in the partnership in exchange for “services to be rendered.”

Steps for Setting up a Limited Partnership

 

  1. 1.      Certificate of Limited Partnership
    1. a.      Name search with the designated stare agency (usually the Secretary of State).
    2. b.      Complete the Certificate of Limited Partnership.
    3. c.       File Certificate with the designated state or county agency.
    4. d.      Pay the Filing Fee (varies from state to state).
    5. e.       Wait for the form to be approved by the State.
    6. f.       Keep approved original with your important papers.

 

  1. 2.      Limited Partnership Agreement
    1. a.      Complete the Partnership Agreement Form.
    2. b.      Complete the Schedule A.
    3. c.       Sign and notarize (all partners).
    4. d.      Make copies for each partner.
    5. e.        Keep original with your important papers.

 

  1. 3.      Federal Tax ID Number
    1. a.      Complete the IRS SS-4 Form
    2. b.      Telephone the IRS or go to www.irs.com to obtain your tax ID number (a separate number is required for each partnership).

 

  1. 4.      Transfer Property
    1. a.      Real estate deeds are filed with the county recorder or registrar of deeds in the county where the property is located. A Quit Claim, Warranty Deed, or Grant Deed is generally filed to show a change of ownership.
    2. b.      Tided Property – Change the title (bank accounts, mutual fund accounts, stocks, bonds, autos, etc.).
    3. c.       Personal Property- List on the Schedule A of the LP Agreement or in a separate conveyance, Bill of Sale, or Memorandum of Gift form.

Assets that Cannot be Owned by a Limited Partnership

 

  • Stock in an S Corporation (Consider a Single Member LLC for asset protection.)
  • Stock of a Professional Corporation (Shares of the PC may be held by a Single Member LLC if the state’s professional regulatory agency allows.)
  • A partner’s interest in a Qualified Retirement Plan or Individual Retirement Account (IRA) (Qualified Retirement Plans are often trusts themselves and are covered under ERISA laws for asset protection. IRAs, however, have only limited protection under state law.)
  • Accounts Receivable & Inventory should normally be held within the business itself and not within a separate Limited Partnership.
  • Household checking accounts should normally be held in the individuals name and/or in the name of the Revocable Living Trust.
  • Vehicles – most family vehicles are kept in the person’s name in a Revocable Living Trust or in a LLC because they could pose a risk to assets kept in most Limited Partnerships.

Taxation of a Partnership

 

  • Pass-through Entity- Limited partnerships do not pay income taxes. Profits and losses arc passed through to the partners on Schedule K-1 and are taxed on the partner’s individual 1040 form.
  • Form 1065 – Each year limited partnerships must file IRS Form 1065, an informational return, regardless of the amount of income or loss. If the partnership does not receive income and does not incur any expenses, the partnership is not required to file a return.
  • Schedule K-1 – A partnership is required to furnish to each partner a K-1 form by the due date of the partnership tax return.
  • Filing deadline – The due date of its partner’s tax returns, which is generally April 15 of the following year.

Annual Maintenance Requirements

 

  • Income distribution to partners (optional)
  • State filing fee or franchise tax (Most people have a bookkeeper complete this routine form.)
  • IRS tax return -1065 and K-1s (Usually completed by your accountant)
  • State tax return is required in many scares. (Most people have their accountant complete this routine form.)

Thank guys, this concludes my 3 part review of the family limited partnership.  For the other 2 parts, or for more information you can follow the links below:

– Matt, Legally Mine

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