What Are The Basic Aspects Of A Family Limited Partnership And How Does It Work?
A Family Limited Partnership (FLP) accomplishes two main goals in estate planning. An FLP can be used to reduce the amount of federal estate or gift taxes on assets. It is also an effective means of passing a family business to the next generation. However, setting up an FLP requires the advice and guidance of an experienced estate planning attorney, as this type of limited partnership requires expert planning and execution in order to provide the best possible advantages without creating unnecessary expense or complications.
What is a Family Limited Partnership (FLP)?
An FLP is a partnership between family members funded by assets owned by the family members. The partnership can be used to operate a family business and it can be used to consolidate and control a variety of different assets. At the end of each year, the partners receive a share of the FLPs profits or losses. Operating an FLP can be time consuming and costly. The partnership must file annual returns, which require careful bookkeeping and accounting throughout the year. The assets owned by the FLP will determine the amount of time and cost required to operate the partnership.
Is There Only One Type Of Family Limited Partnership (FLP)?
No, there are two types of family limited partnerships: you can form a general partnership or a limited partnership.
In a general partnership, each family member has the right to participate in making decisions and operating the partnership. However, all general partners share the liability for all debts and obligations of the partnership and/or the family business being operated by the partnership.
With a limited partnership, you have both general partners and limited partners. The limited partners do not have any control over the management of the partnership; however, limited partners do not have any liability for the partnership’s obligations. The general partner or partners have sole control and management, but they also accept all of the liability for the partnership’s obligations.
How Can I Use a Family Limited Partnership (FLP) to Transfer a Family Business?
Parents who own and operate a family business may not be comfortable passing along the family business to children or other heirs all at one time. An FLP allows parents to maintain sole control of the family business as general partners while giving their children limited partnership shares. Limited shares allow the parents to transfer ownership interest to children, without giving the children management control of the business.
When parents feel more confident with their children operating the business, they may transfer general partnership shares to the children, until they ultimately transfer sole operation of the business to their children. With an FLP, parents can gradually turn over a family business to their children while reducing the value of their assets for estate tax purposes.
Do You Have Questions About a Family Limited Partnership?
Contact the experienced Ohio probate attorneys of Lovett & House, Attorneys at Law to discuss whether an FLP is the best estate planning tool for you to achieve your financial goals. Our experienced attorneys will answer your questions about FLPs and help you develop an estate plan that encompasses your desires, needs, and goals by using a variety of estate planning tools. Call us today.