While the financial operations of a family are certainly different than the financial operations of a business, there are many similarities. Both have the common goal of increasing wealth. Therefore, some business models provide important benefits for families. One such model is a limited partnership.
A family limited partnership can be used to save families significant money in estate and gift taxes and may be used to legitimately provide protection from creditors. Indeed, a family limited Partnership is considered by many as the most beneficial structure available for wealth preservation via asset protection, estate planning and tax minimization.
What is a Family Limited Partnership and what are its advantages?
As the name implies, a Family Limited Partnership or FLP is a limited partnership for the benefit of a family. It is created by and run by family members. An FLP may have general partners and limited partners. General partners maintain all of the responsibility and liability exposure for the partnership. They make all of the investment decisions and are responsible for all of the liability. In FLPs it is typically the parents, grandparents or other creators of the FLP who are the general partners and it is the children or grandchildren whom the FLP is created to benefit who are typically the limited partners.
An FLP may be beneficial to both general and limited partners. General partners can significantly reduce their tax liability by transferring assets into an FLP. General partners also retain control of the assets and continue to manage the assets. Limited partners also benefit from FLPs. They have an ownership interest in the FLP and that interest may be protected from creditors and others such as ex-spouses during divorce proceedings. There is also an element of fairness in FLPs. Instead of maintaining separate trusts or brokerage accounts for each child or grandchild, the family can share in the same profits and losses by combining the assets into an FLP.
How Is a Family Limited Partnership Created?
A Family Limited Partnership must be created carefully and according to the terms set forth in state law. If it is not created correctly then the family members who make up the general and limited partners will not reap the benefits of the FLP. It is important to contact an attorney with experience in this area or to use reliable documents and information to do it yourself. The FLP must be properly created, properly funded and properly used. All formalities associated with the FLP must be carefully followed, the partners must act within the scope of the partnership agreement and the FLP must be funded with the correct type of assets.
An FLP is comparable to a limited partnership that is created by unrelated people for business purposes. All limited partnerships are required to maintain appropriate business records and an FLP is no exception. An FLP should be treated as a business and should be part of a person’s estate plan. It is a sound way to transfer assets to other family members while maintaining control over those assets and a certain percentage of ownership.
Speak to an Experienced Estate Planning Attorney Today
This article is intended to be helpful and informative. But even common legal matters can become complex and stressful. A qualified estate planning lawyer can address your particular legal needs, explain the law, and represent you in court. Take the first step now and contact a local estate planning attorney to discuss your specific legal situation.