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Family Limited Partnership
What if you could sign a document, write a check for a few thousand dollars and begin to ....
- (1) save thousands of dollars in income taxes every year,
- (2) save hundreds of thousands in future estate taxes,
- (3) insulate your assets from the lawsuit epidemic and
- (4) also retain total control over your assets?
Those are the promised benefits of a "family limited
partnership" or FLP.
What is A Family Limited Partnership?
However, huge amounts have also been lost by investors in corporations. Over time, the greatest losses occur in unincorporated proprietorships and informal general partnerships. It isn't the form of the business that causes the losses.
A limited partnership is simply a legal arrangement where investors are treated like partners for tax purposes, but like corporate stockholders for liability purposes. The limited partner is not subject to any debts of the partnership in excess of the limited partners' capital. Each limited partnership must have one or more general partners who are personally liable for any debts of the partnership. In order to avoid partnership liability, the limited partner gives up any management of the partnership. The general partner(s) have total discretion regarding the management of the partnership.
A "family" limited partnership (FLP) is a limited
partnership
where all of the partners are members of the same family group. For
this purpose, the "family" label is simply an adjective. The law
doesn't
really distinguish between a family limited partnership and any other
type of limited partnership. In addition, in a FLP, someone in the
family is the general partner so that control is retained by one or
more
family members. When a FLP operates a family business, the parent that
manages the business is the general partner. The children, a spouse or
other family members are limited partners. When the FLP is used to own
family investments, the high risk spouse and children are often the
limited partners and a spouse who is not susceptible to lawsuits is
usually the general partner.
The asset protection benefits of the limited partnership are
based on a general rule of law that limits the claims of a creditor to
a "charging order" that gives the creditor of a partner the right to
take any amounts that are distributed to that partner. However, the
creditor is not usually able to secure access to the assets held by the
partnership or to force the partnership to make distributions. This of
course does not protect the partnership assets
from claims against the partnership as an entity. And, there have been
some cases where the courts have granted creditors the right to force
some distributions where the partnership is not distributing any funds
to the partners.
Further details about protecting your assets from future lawsuits with limited partnerships are available in our subscriber's web site.
NOTICE: This Information is intended only for educational purposes and may be regarded as controversial by some legal experts. Readers should consult with a qualified professional who is familiar with their specific financial and tax circumstances before adopting any ideas that are discussed in this article.
About the author:
Vernon Jacobs is a CPA/CLU who works as a tax author and consultant. He writes a free email newsletter on asset protection and offshore topics.. He can be reached by phone at (913) 362-9667.|
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Offshore Press -- Your objective resource for global financial planning
Sponsored by Offshore Press, Inc. Copyright, 2007, All rights reserved. Offshore Press, Inc., Box 8194, Prairie Village, KS 66208. (913) 362-9667. Email to Offshore Press Vernon K. Jacobs, Webauthor.