Estate planning can include creating a trust or will, but people may be less familiar with a family limited partnership as an estate planning option. A family limited partnership (FLP) is an entity created to manage and protect family assets. There are two types of partners in this arrangement, general and limited.
Purpose and benefits
The purpose of forming an FLP is to protect assets by transferring them into the partnership. It allows family members to consolidate and manage their assets efficiently, can help protect them against creditors and may help them reduce their taxes.
General partners manage the partnership’s assets and are responsible for making decisions. Limited partners contribute capital, but they have very little involvement with the day-to-day operations of the partnership. The general partners can retain control while they gradually transfer ownership to limited partners over time, which also helps with succession planning.
One of the primary benefits of a FLP is privacy and confidentiality. The partners do not have to disclose their ownership interests publicly. This is helpful for families who want to keep their financial affairs to themselves.
Process
It’s important to determine which assets should be transferred into the partnership and to decide on the roles and responsibilities of the general and limited partners.
The partnership agreement should be in writing and all partners should review and sign it. To fund the FLP, the assets must be transferred into the partnership which usually involves changing the ownership of the assets from an individual to the partnership’s name, depending on the type of asset.