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The cornerstone of every asset protection plan is the Family Limited
Partnership (FLP). Over the past many years the Family Limited Partnership
has evolved as the foundation of the asset protection plan due to
its multi-faceted ability to insulate assets from outside interference,
transfer them to family members, de-value them for estate tax purposes
and retain control of them all at the same time.
An Family Limited Partnership is a specially designed limited partnership,
consisting of one or more general partners and one or more limited
partners. The general partners are responsible for managing partnership
affairs while the limited partners have no management rights. In
the typical scenario, selected family assets are transferred the
FLP and the husband and wife are named as General Partners and limited
partners. The plan is to make the children limited partners over
time.
The FLP is used for asset protection because it allows an individual
to maintain full control and enjoyment of his property while divesting
himself or herself of legal ownership. The law provides that a creditor
of a partner cannot reach the assets of the partnership to satisfy
an obligation of the partner since it is the partnership as an entity,
not the partner, that now owns the asset. Instead, the creditor
receives a charging order which in essence causes the creditor to
be taxed for income never received. (This can be very discouraging
to potential lawsuits!)
One more important feature of the FLP is the discounting of its
assets. Because the assets are held in limited partnership units,
the assets become fractionalized and less marketable allowing as
much as 40% discounts to be applied to the value of the unit shares
of the assets. These discounts result in substantial devaluation
for estate tax purposes.
In our simplified asset protection plan, with some exceptions,
your safe assets are transferred to a family limited partnership;
your home and/or vacation home are transferred to a qualified personal
residence trust; your business is transferred to an LLC or S Corporation,
depending on the type of business; rental or commercial real estate
is transferred to an LLC and the remainder of the assets go to the
FLP. All interests in these entities are held by your living trust.
What assets typically go in the
Family Limited Partnership?
Limited Liability Company vs. Limited
Partnership
Giving shares to your heirs
Current Estate and Gift Tax
Laws
Annual Tax Free Gifting
Gift Tax Reporting
Tax Laws Relating to Family Limited Partnerships
What tax forms does the Family Limited
Partnership file?
Tell me more about the discounts
for assets owned in a Family Limited Partnership
The "Charging Order",
a Creditor's nightmare
Disadvantages of the Family Limited
Partnership
Fees for a stand-alone Family Limited Partnership
What do you do after you have a Family
Limited Partnership?
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