First Steps In Family Limited Partnerships

There are many ways to transfer your assets to your heirs or to obtain asset protection and a family limited partnership can be one of them. It works like a normal partnership, but only family members can be general or limited partners. General partners are usually the only persons liable while limited partners can benefit from asset protection and other advantages. If a limited partner becomes involved with the management of the family limited partnership, he becomes general parent and in consequence, liable. People can eliminate the liability factor if they set an irrevocable trust as general partner.

If you create and use a family limited partnership properly, you can transfer your wealth to your children without any taxes. This is a huge advantage and in the right hands, family limited partnerships can be strong tools against taxes. Timing is important, because the IRS keeps an eye over those who form family limited partnerships on their deathbed. If you want to start a family limited partnership you need to start it when everything is still in order, if you do it too late the IRS might have a problem with it. A FLLP does not in any way 'protect' from IRS collection of taxes due. It is a tax-neutral, flow-through entity for tax purposes.

At some point, some of the limited partners should become general partners. At first, the older generation, usually parents or grandparents are general partners. But in time, some limited partners should take control of the business and get involved in the management, therefore becoming general partners and liable. You need to know who has the potential to run a family limited partnership. If everything is clear, the family limited partnership will be successful and members shouldn't have any problems with the changes that will appear. A good structured plan should come along with asset protection, tax reduction and wealth transfer while still being perfectly legal and with no consequences.

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