Estate Planning: The Advantages of Family Limited Partnerships
Estate planning is an important process that involves making a plan for the transfer of your assets and wealth after you pass away. One estate planning strategy that has gained popularity over the years is the creation of family limited partnerships (FLPs). An FLP is a legal structure that allows family members to pool their assets together in a partnership, with one or more family members serving as general partners who manage the partnership and its assets. The other family members are limited partners who invest in the partnership.
Advantages of Family Limited Partnerships
- Estate and Gift Tax Benefits: One of the biggest advantages of FLPs is the estate and gift tax benefits. By transferring assets to an FLP, the general partners can gift limited partnership interests to other family members, which helps to reduce the taxable value of their estate. Additionally, because the FLP is considered a separate entity from the family members, it may be able to take advantage of certain deductions and tax breaks, which can further reduce taxable income.
- Asset Protection: Another advantage of FLPs is that they offer asset protection. By moving assets into an FLP, the general partners can shield assets from potential lawsuits and creditors. This can be particularly beneficial for individuals who are at a higher risk for lawsuits, such as doctors and business owners.
- Control: FLPs also provide a way for family members to retain control over their assets, even after they have transferred them to the partnership. The general partners have the authority to manage the assets and make investment decisions, while the limited partners have little to no say in the day-to-day operations of the partnership. This helps to ensure that the family's assets remain within the family and are managed according to their wishes.
- Flexible Distribution: Another advantage of FLPs is that they offer a flexible distribution structure. The general partners have the ability to distribute income and assets to the limited partners based on their individual needs and circumstances. This can be particularly beneficial for families with members of varying ages and financial situations.
Considerations for Creating an FLP
While FLPs offer several advantages, there are also some important considerations to keep in mind when creating one. These include:- Cost: Creating an FLP can be expensive, as it typically requires legal assistance and may involve filing fees and other expenses. Additionally, ongoing maintenance of the partnership may also be costly.
- Complexity: FLPs can also be complex to set up and manage. General partners must ensure that they follow all legal and regulatory requirements, and may need to enlist the help of financial and legal professionals.
- Familial Relationships: Creating an FLP can also have implications for familial relationships. General partners must be willing to give up control over certain assets and may need to make difficult decisions regarding distributions and management of the partnership.