Family Limited Partnerships
A family limited partnership is a partnership in which all of the partners are family members or entities owned by the family members.
A limited partnership has two types of partners: general partners and limited partners. The general partners have management and control. The limited partners have reduced involvement similar to non-voting shareholders of corporation.
How does a Family Limited Partnership operate?
In a family limited partnership, the senior generation or an entity owned by the senior generation is typically the general partner(s). The limited partnership interests are typically held by the senior generation initially and then the interests are gifted to the junior generation over time. The number of units gifted in the future is totally customizable to the family situation.
The flexibility available through and FLP make it one of the most versatile and useful estate planning options available for leveraging pooled investments, owning real estate such as farms, ranches (but not the homestead on the property if the homestead is personal use property) or non-homestead/non-personal use real estate poised for development.
Some benefits of holding your assets in a Family Limited Partnership
- You can transfer the equity and value of the asset to the next generation but retain control over the asset.
- You can establish a method of making family gifts without the dividing the assets themselves.
- Increase family wealth through pooled investments, leverage.
- Restrict non-family members from owning family assets.
- Provides protection of the assets from creditors of family members.
- Prevents the transfer of assets from a failed marriage.
- Prevents the partition of real estate when disagreements occur among family members.
- Facilitates the administration and reduces cost associated with disability or the probate of assets for family members.
- Promotes knowledge of and communication about family assets.
- Promotes junior generation asset management training prior to control.
Which assets are qualified for a Family Limited Partnership?
- Non-Homestead/non-personal use real estate (if not encumbered in excess of your basis).
- Some marketable securities.
- Investment assets of a family trust.
- Plant and equipment leased to an operating entity.
- Farm and ranch land.
- Life insurance policies.