Family Limited Partnership Defined

Family Limited Partnership or FLP is a kind of limited partnership; it is owned by family members. Similar to limited partnership, there are general partners as well as limited partners. The decisions regarding the financials are executed by the general partners; because of this, the liabilities are on the general partners. On the other hand, the limited partners do not have accountabilities in terms of asset management in the FLP; generally, their liabilities are limited. Also, FLP generally is not taxable similar to that of corporations. The taxes are managed individually.

Details provided on behalf of Andrew Lamkin, and provided as informational and educational material only.

Family Limited Partnership Benefits

One of the benefits of FLP is that the family members are able to transfer their assets to the beneficiary; it does not have to undergo probate. The amount of the assets is given to their descendants; the parents continue to manage the finances. FLP can decrease the tax load of the parents, due to the transfer of the assets to the beneficiaries; this qualifies for gift tax exclusions, and as a result, income tax is reduced.

Additionally, in case of marriage failure, FLP allows protection of the assets from ex-spouse’s creditors. Again, because the assets are transferred to the children, the creditors will be unable to demand for the money that is indebted.

The investment fees are decreased when a family invests in one FLP. Instead of numerous diverse accounts that are independently managed, one account can be established; the children and their trusts may benefit from the interests from the FLP.

Establishing an FLP

When setting up an FLP, the present and future owners are considered. The first step in establishing an FLP is to write a limited partnership agreement. After that, assets can be transferred to the partnership. However, individual assets cannot be transferred; this includes life insurance, home, and retirement plans. Corporate stocks, real estate, and cash can be transferred. After transferring the assets, the senior members of the family manage the FLP until their demise. The limited partners can benefit from the interests from the FLP.

It is important to note that the legality issues on FLP are quite complex; they also vary among states. When establishing an FLP, it is best to consult an attorney.

The information in this article is not meant to be taken as legal advice.