Liquidating limited partnerships
Thus, for many even wealthy taxpayers, there is no federal estate tax benefit to FLPs because the discounts will not save a tax if none is due.But there may now be a tax planning negative (for all taxpayers, even wealthier taxpayers paying a federal estate tax).If the family faces a state or federal estate tax and the entity owns a building used in the family business that might not be sold for generations, if ever, the capital gains tax on a present value basis is irrelevant.This is perhaps the critical threshold planning point. Where the partners and the partnership have different tax years this can result of a bunching of taxable income into one year. An analysis by the FLPs accountant prior to implementing any plan for a partial or complete liquidation of the FLP is an essential prerequisite.In some instances, liquidating the entire FLP may in fact be warranted.However, there are many more options that warrant consideration, and a knee-jerk reaction without complete analysis of all relevant facts is unlikely to provide the optimal result.Unless the partnership agreement provides otherwise, if a new general partner is not elected by the automatic dissolution date, the Partnership is wound up and dissolved in accordance with the partnership agreement or in accordance with a court order made on the application of any partner or creditor of the Partnership.The Amended Law preserves the power of the court, on the application of a partner or creditor of a Partnership, to make such orders and give such directions for the winding up and dissolution of a Partnership as may be just and equitable.
Relying on generalizations in the planning literature, or worse, what your golf buddy has done, are rarely going to lead to optimal planning results. Evaluating such a step should be a commonly considered pre-mortem planning step.Family limited partnerships (“FLPs”) and family limited liability companies (“LLCs”) have been a mainstay of estate and related planning for decades.FLPs and LLCs (collectively, “FLPs”) could have been formed for a myriad of reasons.That negative is that the discounts reduce the basis step-up obtained on death.On death the “cost” for tax purposes increases in simple terms from what the decedent paid for the assets to its fair value on death.