Q&A on Family Limited Liability Limited Partnerships
Jan 07, 2012
Continuing with the previous posting, this information will address a variety of issues regarding the use of a family limited liability limited partnership (“FLLLP.”) Remember, every state has its own specific laws and every plan is different so it is crucial to make sure this fits your plan. Here are some answers to “practical” questions with using a FLLLP and farming.
1) “Mom and dad”, as general partners, can decide to rent the land in the partnership to anyone they wanted.
a. Generally, the FLLLP would rent the land to your farming operation.
b. If Mom and dad owned a limited partnership interest in the FLLLP, they could also, as separate individual farmers, rent the land from the FLLLP.
2) What would happen when either or both mom and dad died?
a. Here it is crucial that your estate plan is updated so that the shares of the entity are transferred as you want.
b. Assuming their plan stated that the general partnership ownership and the remaining Limited Partnership interests ownership would go to their children (needs to be set up in Mom and dad’s Wills), then there be no problems with your children either continuing or dissolving the FLLLP at that time, and each taking their respective 50% of the land in their own individual names.
3) What happens if 5 years down the road, you decide to dissolve the FLLLP.
a. In this instance all owners of the FLLLP (mom and dad, respectively) would take their respective shares of the partnership. This means that the land would come out of the FLLLP and into your individual names. As long as you did not sell the land at that point, it would be a non-taxable event.
b. Remember, if shares are gifted to children, or sons / daugthers in law, and the entity is later dissolved, their share of the land based on their gifted ownership of the FLLLP goes to THEM; not revert back to mom and dad as the original givers.
The next posting will talk about some benefits and consequences to gifting the shares of a FLLLP.
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