FAMILY PARTNERSHIPS AND LIMITED LIABILITY COMPANIES

Family partnerships, such as limited partnerships, and limited liability companies, have been used for a wide variety of tax and non-tax purposes. The partnership consists of family members which includes only a spouse, ancestors, lineal descendants, and any trust for the benefit of such persons. A “regular partnership interest” is similar to that well understood by those dealing with a normal type of partnership in its typical structure: a pro rata sharing of income, including loss and capital or any other allowable allocation. The family partnership may have income tax advantages over corporations because the partnership, unlike a corporation, is not a tax-paying entity. Instead, the partnership is a conduit through which the income flows to the partners currently.

The grantors may contribute selected assets to a family partnership. They would be the “general partner” retaining ownership by holding general or limited units. They would gift limited partnership units to each of their children and grandchildren. On the negative side, however, the use of a family partnership involves some tax risks because of the lack of certainty regarding the lack of application of some income, gift and estate tax rules. Family partnerships are subject to close scrutiny by the Internal Revenue Service because of their potential for abuse.

LLCs are used for planning, discounting value, retaining control and sheltering assets. They must be maintained separately with annual filings to be effective. They require certificate of formation and subsequent filings with the State. An operating agreement, or agreement clarifying practical aspects is necessary from a management perspective.

LLCs: A limited liability company (LLC) has the liability protection of a corporation but the tax status of a partnership. In other words, while you get liability safeguards similar to those of a corporate shareholder, you pay taxes on the personal rate on your share of the profits or use the loss to offset other income.

While an LLC has many of the same characteristics as an S corporation or a limited partnership, it is, in many cases, more flexible. For example, it is possible to use an LLC: to bypass the restrictions on S corporation ownership, to allocate profits differently from ownership interests, or to avoid the general partner’s personal liability in a limited partnership.

Filing to form an LLC can be extremely complicated, and the paperwork needs to be completed meticulously, so you probably want to hire an attorney to help you. You need to follow the state rules that govern formation of an LLC in your state, and file the proper forms with the correct state bureau. You also will need to observe IRS guidelines in your LLC operating agreement (governing the relationships and responsibilities of the LLC owners) so that you qualify for taxation as a partnership rather than a corporation.

Limited Partnerships: Limited partnerships are typically used for real estate investing or in situations where a business is looking to finance expansion. For most small businesses, forming a general partnership or an S corporation will meet their needs.

In circumstances where they are appropriate, limited partnerships provide many of the benefits of partnerships and corporations. They provide a way for small businesses to raise money without taking in new partners, forming a corporation, or issuing stock.

A limited partnership must have one or more general partners, who have the same responsibilities and liability restrictions as they would in a general partnership. In addition, there are one or more “limited” partners, typically investors not involved in the day-to-day activities of the company.

These limited partners are not personally liable for debts of the partnership, and they get the same tax advantages as a general partner. However, they do have significant restrictions. They can not, for instance, be involved in the management of the company (with few exceptions). If they are, they may become personally liable for the partnership’s debts.

Creating a limited partnership can be as complex and costly as forming a corporation. It is advisable to hire an attorney as the filing requirements and business maintenance requirements must be diligently followed.

Elder Law & Vulnerable Adults: Vulnerable Adult Protection (VAP) Petitions. Any petition protecting a vulnerable adult shall be filed as a civil matter separate from any guardianship matter. If there is an existing guardianship case when the VAP is filed, a copy of the Protection order may be placed in that file. Protection for elderly from solicitors and sometimes family members or others is available through the court. We have secured thousands of dollars returned to our clients from ruthless solicitors who prey on vulnerable adults.

Certain matters are particularly important with our elderly friends and relatives. Vulnerability can set in and protections are sometimes necessary. Guardianship and protection for vulnerable adults are necessary when people are not making sound decisions and need assistance. Mechanisms exist; some requiring court involvement.

Guardianships Guardianships are necessary when a person has not nominated someone through an effective power of attorney. Through a guardianship the Washington guardianships are governed by court rules. A hearing is set to determine if the person seeking guardianship is qualified and if the alleged incapacitated person actually needs protection and help through a guardianship.