Estate Planning Family Limited Partnership

Family Limited Partnerships or FLPs are sometimes referred to as FLiPs. A Family Limited Partnership is basically a limited partnership where all the parties involved are family members. There is no legal classification for a Family Limited Partnership and while the Internal Revenue Service (IRS) recognizes a limited partnership (LP) as legal financial instrument used for asset protection, it does not recognize a Family Limited Partnership as such but does recognize it as a limited partnership. However, an estate-planning professional can demonstrate how this estate-planning tool can help your family save taxes and guaranteed succession of your family's assets and investments to your heirs throught the probate process. Estate planning and Family Limited Partnership can save your family and beneficiaries a substantial amount of money in taxes.

In a traditional limited partnership, there must be at least two partners with at least one general partner and at least one limited partner. The general partner has unlimited liability and decision-making powers in the limited partnership. General partners are responsible for all legal debts and obligations of the LP. The limited partner is only liable for the amount of his/her investment in the limited partnership and has limited decision-making powers. Limited partnerships are created by statute and must be registered with the state an LP. A limited partnership is recognized as an independent entity and taxed as such.

If you may need legal assistance or have questions, consult with an Estate Planning Attorney in your area to receive a free consultation.

In a Family Limited Partnership, the parents are initially both general partners and limited partners. The parents structure the partnership and put whatever assets they want to leave for their heirs into the FLP. Later the parents gift their limited partnership interests to their children. The whole reason for FLiPs is to hold a family's business interests or investments in the FLP so the parents can, at some point in time, bequeath their limited interests to their heirs.

Estate planning and Family Limited Partnerships can help reduce your family's tax burden through federal gift exemption rules, asset protection, and estate tax planning benefits. If utilized properly, estate planning and Family Limited Partnerships can be very productive tools for asset management and financial planning. To maximize the tax and gift exception benefits that FLiPs have to offer, an experienced estate-planning attorney should set it up to guarantee that benefits that FLiPs offer are fully utilized.

To ensure that a Family Limited Partnership will work as intended certain aspects of the structure of the FLP should include:

  • The FLP should be properly funded and any assets or funds for consideration of tax benefits, gift exemption rules, or asset protection should be transferred into it
  • The FLP needs to be properly maintained if annual fees are not paid the FLP will be stricken and will no longer be recognized by the state or the IRS
  • The FLP must be structured with operating agreements that must be observed or the FLP could be deemed inadequate for recognition as a limited partnership under the law
  • The FLP must be treated as a business entity and personal expenses and assets such as a home bills and primary residence should not be placed in it

When used correctly, estate planning and Family Limited Partnerships afford extraordinary tax advantages and asset protection opportunities. FLiPs can be used to create a powerful financial planning strategy that will offer outstanding income tax benefits for the entire family. They can be used in combination with other asset protection and tax saving tactics to increase their benefits.

If you may need legal assistance or have questions, consult with an Estate Planning Attorney in your area to receive a free consultation.

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