Family Limited Partnerships (FLP)
What Is a Family Limited Partnership?
A family limited partnership (FLP) is a legal entity created by family members to manage and invest family assets. The partnership is managed by one or more general partners, who have full control over the partnership’s activities.
The limited partners are typically relatives of the general partners, and their role is primarily financial; they provide capital for the partnership but have no say in its management.
Benefits of a Family Limited Partnership
There are several benefits to creating a family limited partnership:
Asset protection
A family limited partnership can help protect your assets from creditors.
Because the partnership is a separate legal entity, your personal assets are not at risk if the partnership incurs debt or is sued.
Estate planning
A family limited partnership can be used as part of your estate planning strategy.
By gifting partnership interests to your children, you can reduce the size of your estate and minimize estate taxes.
Tax benefits
A family limited partnership can offer significant tax advantages.
The partnership can be used to invest in assets that appreciate in value, such as real estate or stocks and bonds.
The profits from these investments can then be distributed to the partners, who will pay taxes on them at their individual tax rates.
This can result in a lower overall tax bill for the family than if the assets were held directly by the individuals.
How to Set Up a Family Limited Partnership
Creating a family limited partnership might be expensive depending on how it’s done.
You will need to draft a partnership agreement that outlines the roles and responsibilities of the general and limited partners, as well as the ownership structure of the partnership.
This agreement can be created with the help of an attorney. Once the agreement is signed by all parties, you will need to file it with your state’s business entity registry.
Family Limited Partnership vs. LLC
A family limited partnership is similar to a limited liability company (LLC), but there are some important differences.
An LLC is a separate legal entity that offers its owners asset protection and personal liability protection. Like a family limited partnership, an LLC can be used for estate planning and tax advantages.
However, an LLC is much easier to set up and manage than a family limited partnership.
LLCs also have more flexible ownership structures; an LLC can have any number of owners, while a family limited partnership must have at least two partners (one general partner and one limited partner).
If you’re considering setting up a family limited partnership, you should talk to an attorney or accountant to see if it’s the right choice for your situation.
FAQs – Family Limited Partnerships
What is a family limited partnership?
A family limited partnership is a legal entity created by family members to manage and invest family assets. The partnership is managed by one or more general partners, who have full control over the partnership’s activities.
The limited partners are typically relatives of the general partners, and their role is primarily financial; they provide capital for the partnership but have no say in its management.
What are the benefits of a family limited partnership?
There are several benefits to creating a family limited partnership, including asset protection, estate planning advantages, and potential tax benefits.
How do you set up a family limited partnership?
You will need to draft a partnership agreement that outlines the roles and responsibilities of the general and limited partners, as well as the ownership structure of the partnership.
This agreement can be created with the help of an attorney. Once the agreement is signed by all parties, you will need to file it with your state’s business entity registry.
What is the difference between a family limited partnership and an LLC?
A family limited partnership is similar to a limited liability company (LLC), but there are some important differences.
An LLC is a separate legal entity that offers its owners asset protection and personal liability protection. Like a family limited partnership, an LLC can be used for estate planning and tax advantages.
However, an LLC is much easier to set up and manage than a family limited partnership.
LLCs also have more flexible ownership structures; an LLC can have any number of owners, while a family limited partnership must have at least two partners (one general partner and one limited partner).
If you’re considering setting up a family limited partnership, you should talk to an attorney or accountant to see if it’s the right choice for your situation.
Conclusion – Family Limited Partnerships as an Estate Planning Technique
A family limited partnership can be a very effective estate planning tool, particularly for larger estates.
By creating a FLP, you can effectively transfer ownership of assets to your children while still maintaining some control over those assets. This can help to protect your assets from creditors and lawsuits, and can also help to minimize taxes on your estate.
However, it is important to consult with an experienced estate planning attorney before creating a FLP, as there are some potential risks involved. Additionally, you will need to be sure to follow all of the required legal steps in order to create a valid FLP.
Assuming you do everything correctly, though, a family limited partnership can be a great way to transfer ownership of your assets to your loved ones while still maintaining some control over them.