Limited Partnerships

Limited Partnerships

Limited partnerships are an exciting way to save on taxes while providing unparalleled asset protection. If you have assets that generate unearned income, a limited partnership may provide you with tremendous benefits.

What is a limited partnership? A limited partnership is a business arrangement between two or more people or entities. Assets that are transferred into the partnership are considered partnership property, thus creating a layer of asset protection for the owners of the partnership. Depending on the type of partner you are, limited or general, you may be able to receive passive income while benefiting from rock solid asset protection and numerous tax benefits.

Asset Protection: A limited partnership has two types of partners: general and limited. General partners are personally liable for the partnership debt, while limited partners are not liable for the debts of the partnership. The general partner manages the partnership, while the limited partners are passive investors who do not manage. In other words, the general partner has control and personal liability while the limited partners have no control and no personal liability. Of course, if you own a corporation, the corporation can certainly be the general partner while you and your family members remain limited partners.

Tax Advantages: Limited partnerships allow you to divide income with other individuals, including family members. Because the limited partnership is managed by a general partner, depending on who the general partner is, there may be further tax benefits based on the agreement between the general partner and the partnership (i.e. the general partner can charge a fee for managing the partnership).

Estate Planning: Over the last decades, limited partnerships have become the entity of choice for passing assets on to generations during the lifetime of the grantor. In other words, you can remain in control of an asset while at the same time giving over an interest in the asset to family members or other organizations.

Limited Partnerships are an excellent tool for any financial plan. The assets held in the partnership are not the property of any particular partner. This makes the asset unattractive to potential creditors of individual partners. The income that flows down to the individual partners maintains its character (short-term or long-term) and for limited partners, is not subject to FICA or self-employment taxes. For example, if the partnership owned a brokerage account, the creditors of the individual partners would not be able to attach the brokerage account in a court proceeding. At the same time, if there were long-term gains earned in the partnership, the individual limited partners would still be able to take advantage of the lowered long-term capital gains rate. This is the best of both worlds.

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