A Family Limited Partnership is an entity that allows for control and management of partnership assets while providing asset protection benefits. A Family Limited Partnership is structured in the same manner as a limited partnership, except that only family members may participate.
In a Family Limited Partnership, generally, the senior family members (parents or grandparents) contribute assets in exchange for a small general partner interest and a large limited partner interest. They can then give all or a portion of the limited partner interest to their children and grandchildren. Transferring limited partnership interests to family members reduces the taxable estate of senior family members. The senior family members transfer the value of the asset to their children, removing it from their estates for federal estate tax purposes, while retaining control over the decisions and distributions of the investment. Since the limited partners cannot control investments or distributions, they may be eligible for valuation discounts at the time of transfer.
Transfers of limited partnership interests are also eligible for the annual gift tax exclusion, a powerful tool for reducing income, gift and estate taxes. According to law, the value of limited partnership shares can be discounted when transferred to family members. A Family Limited Partnership can usually be amended as family circumstances change.
A Family Limited Partnership also protects assets from claims of future creditors and spouses of failed marriages. Creditors may not force cash distributions, vote, or own the interest of a limited partner without the consent of the general partners. And in the event of a divorce, where a limited partner ceases to be a family member, the partnership documents can require a transfer back to the family for fair market value, keeping the asset within the family structure.
Therefore a Family Limited Partnership can:
(1) Save in income taxes every year,
(2) Save in future estate taxes,
(3) Protect your property from lawsuits