An effective Family Limited Partnership (FLP) can provide very good protection from creditors, as well as the flexibility not found in different trusts, and it is not difficult to change a Family Limited Partnership when the need arises.
A Family Limited Partnership boils down to a traditional limited partnership where the partners are members of the same family.
The common thread between all limited partnerships is that they are run by general partners and owned by limited partners. Typically no limited partner has any vote in the execution of the partnership business. If a general partner owns 1 percent, they control 100% of the partnership.
An FLP can provides protection from personal lawsuit creditors and in the event that a partner has a judgment entered against them, the assets of the FLP cannot be seized. With a limited partnership, the creditor could only get an order known as a “charging order.” A charging order requires the creditor to pay the tax on the limited partner interest even though they cannot force a distribution of the wealth of the partnership to themselves. This acts as a strong deterrent.
The FLP can be used to protect assets including real estate, stocks, bonds, cash, jewelry, and personal and business assets. Dissimilar to a corporation, you are typically free to move your assets in and out of your Family Limited Partnership without suffering an adverse tax effect.
Long recognized by the courts as a family wealth transfer and estate planning tool an FLP also has many other benefits. Families can diversify ownership of their assets by gifting limited partnership interest to children and even grandchildren. Families can consolidate ownership of family wealth under one structure which allows for easier management of family assets. Finally, if done properly, an FLP may be permitted a “discount” in value for federal and state death tax purposes.
