WHY FAMILY LIMITED PARTNERSHIPS (FLPs) MATTER

FLPs are a versatile tool that can accomplish a number of income tax, estate tax, liability management and control objectives. Implemented properly in the right situations, FLPs can be a highly effective and valuable estate and business planning vehicle.

Here is a story:

A family limited partnership is a partnership that exists between family members used primarily to shift income and appreciating wealth and to obtain numerous other tax and non-tax planning benefits.

Here are some of the major reasons people implement FLPs:

1. Created and administered properly, an FLP can reduce the value of an estate for estate, gift, and generation-skipping tax purposes. This reduction in taxable value occurs from (a) a limited partner's inherent lack of control, (b) the highly reduced marketability of the transferred interest, and (c) the inherent inability of a limited partner to unilaterally or immediately access the FLP's profits or assets.
2. Income, and to some extent the tax on that income, can be shifted to a lower generation, thus building up future wealth among the family unit and to a degree shifting income tax burden from a higher bracket parent to a lower bracket adult child and in many cases resulting in intra-family income tax savings.
3. Avoidance of tax problems unique to corporations. FLPs, compared to many other forms of business, are much less (or not at all) subject to personal holding company rules, the accumulated earnings tax, unreasonable compensation problems, or limitations on the number of individuals or trusts or other entities that may be co-owners.
4. Senior generation family members can achieve many tax savings objectives while still maintaining a great deal of control over a business, investment, or other assets. So wealth can be shifted to a future generation slowly or as quickly as the older generation desires but by retaining a general partnership interest, seniors can carefully limit the flow of income, capital, and manage the investment of assets.
5. By legitimately shifting wealth to the hands of other family members over a period of time, the FLP. helps assure the younger generation's financial security and enables assets of a high risk individual (e.g. doctor, engineer, contractor, or developer) to obtain a great deal of protection from the senior family member's future creditors.
6. Parents worried about a younger generation's poor management of investments could avoid the worries brought about in the case of an outright gift. A parent could maintain control over the FLP. and therefore over the assets until the child reaches a satisfactory level of intellectual and emotional maturity and has achieved sufficient financial acumen to properly manage the property.
7. Often, an FLP. is used to unify and simplify ownership of family assets and to make the distribution of assets at the senior family member's death an easier, faster, and less expensive process.
8. One of the most common reasons for forming and maintaining FLPs is that it enables senior family members to gradually train and introduce junior members to the acquisition and management of wealth. That educational process tends to unite family members who now all have a stake in the income and long-term growth of the FLPs assets, reduce disputes, and discourage family conflict.

Of course, there is a lot more to know about FLPs and other alternatives to achieving family financial security objectives.

I hope this information is helpful.

Please contact the Law Offices of William H. Copperthwaite Jr., L.L.C. if you have any questions.

Please note that the information contained in this summary is intended for informational purposes only and is not to be considered tax/legal advice. For specific advice, please contact the Law Offices of William H. Copperthwaite Jr., L.L.C.