Family limited partnerships can be very effective estate planning tools. The unique status that limited partnerships occupy under state law, and the flexibility afforded partnerships in the income tax area make limited partnerships an attractive device in many family planning situations, particularly as a vehicle for the ownership of family assets.
A “family limited partnership” is simply a limited partnership in which all or substantially all of the partners are family members. Family limited partnerships are commonly used to achieve a variety of business and tax objectives.
One of the more common business objectives is simplification of gifting. For instance, the nature of some assets, particularly real estate, render them unable to be easily divided into multiple shares for purposes of gifting. Further, breaking up the family assets into fragments can lead to management and co-tenancy problems. These issues can be avoided by placing assets in a family limited partnership because fractional partnership interests are easily made. Each recipient simply receives a fractional partnership interest, but the underlying assets remain amalgamated. The donor can also maintain control over the assets.
Additionally, an FLP may be structured to provide that potential involuntary transfer, such as a divorce award, may be subject to the buy/sell agreement so that the interest can be purchased by the other partners, or the divorced partner, at fair market value, should the interest be awarded to the “non-family spouse.” In this fashion, an FLP not only functions as a gifting vehicle, but as a tool for preservation as well.
For more information or to schedule a free consultation, contact our office today at 888.222.1328.
Contributed by MH Phoenix Estate Planning Attorney Andrea Claus
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This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.