MN Estate Planning | Family Limited Partnerships

by Flanders Law Firm LLC on August 22, 2016

Family Limited Partnerships in MinnesotaFamily Limited Partnerships in Minnesota

Family-run businesses are an excellent means for parents to leave a legacy for their children. Although simple in concept, passing a family run business down to children or grandchildren can present unexpected pitfalls. Increasingly, many small businesses are using business associations to accomplish estate-planning goals. Partnerships are a business entity useful for estate planning. Although newer to business law than corporations, partnerships offer parents seeking to pass a business down the benefits of flexible management and one level of taxation.

Partnerships, particularly limited partnerships, give parents an attractive option for gradually passing a business to their heirs. Limited partnerships place ownership and management decisions in the hands of the general partners.

For example, parents could create a partnership structure establishing themselves the general partners and their heirs the limited partners. Limited partner status keeps children free from liabilities of the partnership but do not give them any right of control over the business. M.S.A.322A.26. As the general partners/ parents see fit, they can dilute the partnership agreement to give their children more control. The flexibility of partnerships structures complement estate-planning goals well.

Taxes and Small Business Associations

The second principal advantage of using partnerships as an estate-planning vehicle is as flow-through entities, partnerships are subject to one level of taxation. At the entity level, partnerships are not subject to taxation, unlike corporations. I.R.C. 702. Instead, each partner is subject to taxation on his or her distributive share of income, governed by the partnership agreement. I.R.C 701.

This may allow family run businesses to strategically allocate income to partners in a lower tax bracket (presumably children). Furthermore, gifting limited partnership interest in a family business to children may remove certain assets from the purview of estate taxes.

Although accepted as a legitimate form of estate planning for family-run businesses, the IRS is considering tweaking some rules that may impact family run partnerships. For example, partnerships typically use appraisals to value assets that can be discounted, resulting in lower tax exposure. According to the Wall Street Journal article published on June 26, 2015 , the IRS may be taking aim at valuations of stock passed through limited family partnerships. Proposed Treasury regulations in the near future could curtail the discount on certain partnership assets limited family partnerships enjoy.

Flexibility for the Family

Partnerships are a useful vehicle for thoughtful parents and business owners to accomplish estate-planning goals. Flexible management options and reduced level of taxation offer clear benefits for multigenerational family run businesses. However, compared to corporations, partnerships are still a developing area of tax and estate planning law. This should factor into any estate planning decisions for limited family partnerships.

Free Initial Consultations

Contact the Flanders Law Firm today. The firm offers free consultations to all potential clients. Call612-424-0398.

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How to Fund GranchildrenQuestions about Funding Grandchildren Attending College?

Since undergraduate degrees usually help adults earn more throughout their lives, most young people still hope to attend college. However, financing this type of education often proves too expensive for many teens and their parents. Fortunately, many grandparents have decided to step into this financial void and help out.

Since few things bring more joy to older Americans than giving meaningful gifts to their grandchildren, this approach to financing college often winds up pleasing several generations.

However, before you try to pay for any portion of a grandchilds college education, you need to obtain the help of an experienced Minnesota estate planning attorney. He can tell you how to disburse funds in a manner that will minimize problems for your estate while also helping your grandchilds efforts to keep qualifying for future financial aid.

How Many Grandparents Are Seeking This Type of Advice?

According to a survey referenced in a New York Times article published on May 27, 2016, about half of todays grandparents are helping their grandkids cover at least some of their college expenses. In fact, this type of help has become critical since many private colleges now charge over $40,000 per academic year and state universities charge in-state students average annual fees of about $17,000.

Heres some more useful information about how you might go about helping your grandchildren pay their college expenses.

Ways to Tailor an Estate Plan So Your Grandkids Can Graduate with Far Less Debt

  • Consider giving the money for your grandchilds college expenses directly to his/her parents. This approach can result in the money being assessed at a lower rate as parental income — as opposed to the grandchilds income. Doing this can also avoid negatively affecting your grandchilds ability to qualify for future financial aid. Your Minnesota estate planning attorney can explain all of this to you in greater detail;
  • Give serious thought to paying your grandchilds tuition (and perhaps other educational expenses) directly to the school. However, doing this is normally only recommended if your grandchild is unlikely to qualify for any need-based financial aid;
  • Ask your estate planning attorney if giving your grandchild certain stocks or bonds can prove useful. However, keep in mind that this approach might create certain tax problems for one or more family members.

Other Useful Suggestions for Helping to Finance a Grandchilds College Education

  • Start early. You need to begin putting money in accounts for your grandchildren when theyre still quite young so the funds will have plenty of time to grow over the years;
  • Find out how 529 plans work. There are different options you can use when setting up a 529 plan in some states;
  • Check on the security of your own financial future. Make sure youre properly funding your own 401(k), IRA, and any pension or retirement accounts before trying to help one or more grandchildren;
  • Decide if you should maintain control of certain accounts set up to help your grandchild. Youll need to determine whether you should fully control all assets placed in any account designed to help your grandkids. This can prove critical should you and your spouse experience unexpected financial crises. If youve kept control of a 529 account, you can still withdraw funds from it for non-educational purposes. However, youll probably have to pay certain taxes and other penalties for such withdrawals.

Multigenerational college funding allows an entire family to share the joy of helping the youngest members pursue their academic dreams.

Free Initial Consultations

Contact the Flanders Law Firm today. The firm offers free consultationsto all potential clients. Call 612-424-0398.

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