Business Formation: Corporations, LLC’s, LLP’s, Partnerships, & Famaily Limited Partnerships (FLP)
The use of entities in estate planning is a necessary, yet, sophisticated technique. Whether you need to create an entity for business planning or estate planning, we are here to help guide you through the process.
We frequently get retained by clients who are starting a business and need to know what organization type best fits their goals, clients who want to incorporate or organize their existing business, or create a Partnership Agreement for a new venture. The choice of an organizational structure is extremely important. We consider whether a Partnership, Limited Partnership (LP), Limited Liability Partnership (LLP), Corporation (either C or S corp), Professional Association (PA) or a Limited Liability Company (LLC) is appropriate. The tax structure varies from organization to organization. Some typical questions to ask are: who should be taxed on the organization’s profits or dividends? What level of asset protection do I need? What will allow me the most flexibility as my organization grows? What are my reporting requirements? We are versed in the different aspects of each organization and can assist you in determining which structure will accomplish your goals.
On the other side, we have some individual families, with a high net worth, that will benefit greatly from forming a Family Corporation or Family Limited Partnership. In forming a Corporation or FLP, the parents can still retain control of the corporation, manage the daily operations of the entity, and be entitled to the corporation’s profits. The benefit to the estate comes when the parent gifts shares of the stock to the children. The children maintain their status as minority shareholders, while the parent is able to transfer property from their estate, thus reducing the size of the parent’s estate at their death. In addition, most transfers of the shares of the corporation will qualify for a minority control discount, thus allowing for even greater reductions in the size of your taxable estate. The amount of the discount varies between families and corporations, but it is not uncommon to have a 20% discount or more. Also, an FLP could be an extremely valuable tool for a Kansas Farm and Ranch family that owns a large amount of land or livestock and equipment.
An FLP or other corporation must follow the same formalities as any other business entity. Some requirements include drafting and filing articles of organization or similar documents with the Secretary of State. In addition, there is a requirement of sending filing fees and filing annual reports with the Secretary. Finally, an appraisal should be ordered frequently so that the parent can maximize the amount of shares gifted to the children. The minimal amount of expense to maintain the FLP is well worth it when an individual considers that nearly 50 cents of each dollar that is greater than the estate tax exemption limit will go to the IRS.
Creating an organization or other entity is something that should be done by an attorney who is familiar with not only the creation of organizations, but also with the tax consequences and creditor protections each one offers. Our law firm is adept at assisting clients with business entity related drafting and advice.
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Larson and Brown has over 34 years of estate planning legal experience, but we do much more than simply practice law. We are personally invested in our community and work hard to meet the needs of individuals who seek our help. That’s why we build great relationships with our clients by providing valuable information, guidance, and support for current concerns, as well as long term planning.
We care. We listen. We counsel.
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