If you're looking for a way to protect your family's wealth for generations to come, a family limited partnership (FLP) may be the solution you need. An FLP is a type of business structure that allows family members to pool their assets together while gaining certain tax and financial benefits. In this article, we'll take a closer look at what an FLP is, how it works, and how it can benefit your family's estate planning.
What is a Family Limited Partnership?
A family limited partnership is a type of limited partnership where family members act as both general and limited partners. The general partners hold a controlling interest in the partnership and have decision-making power, while limited partners contribute capital but have no say in the management of the partnership. This structure allows families to pool their assets together while retaining control over their wealth.
How Does an FLP Work?
Once an FLP is established, family members can transfer assets into the partnership and receive partnership interests in exchange. The general partner typically holds a small percentage of the partnership interests, while the majority of the interests are held by limited partners. The limited partners can then transfer these interests to their heirs, reducing their estate tax liability.
The general partner manages the assets held by the partnership and can make decisions about how they are invested or distributed. However, the general partner also has a fiduciary duty to act in the best interest of all partners, including the limited partners.
Benefits of an FLP
One of the primary benefits of an FLP is the ability to transfer wealth to future generations without incurring gift or estate taxes. By transferring assets into the partnership, the value of those assets is no longer included in the grantor's estate and is therefore not subject to estate taxes. Additionally, because the limited partners do not have management control, the value of their partnership interests is discounted for tax purposes, further reducing their estate tax liability.
Another benefit of an FLP is increased asset protection. Because the partnership is a separate legal entity, family members' personal assets are protected from lawsuits or other liabilities that may arise from the partnership's activities.
Finally, an FLP can provide a structure for family members to work together and build a shared legacy. By pooling their resources, family members can invest in long-term projects or philanthropic endeavors that may not have been feasible otherwise.
Conclusion
If you're looking for a way to protect your family's wealth and ensure its longevity for generations to come, a family limited partnership may be the right choice for you. By pooling your assets together and gaining certain tax and financial benefits, you can create a structure that provides both wealth preservation and asset protection. As with any estate planning tool, it's important to consult with a qualified professional to determine whether an FLP is the right choice for your family's unique situation. Our Office Can Help
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