Family Limited Partnership (FLP)

A family limited partnership (FLP) is a legal entity that is used to hold and manage assets for a family. It is a hybrid of a partnership and a corporation, and it offers some of the benefits of both structures.

One of the main benefits of an FLP is that it can provide asset protection for the family's assets. The assets of the FLP are held in a separate legal entity, which means that they are not subject to the claims of creditors of the individual family members. This can be a valuable protection for assets such as real estate, businesses, and investments.

Another benefit of an FLP is that it can be used to reduce taxes. The income of the FLP can be taxed at the lower rates of a partnership, rather than the higher rates of an individual. In addition, the FLP can be used to make gifts of assets to the next generation without triggering gift taxes.

There are also some disadvantages to using an FLP. One disadvantage is that it can be more complex to set up and maintain than other types of entities. Another disadvantage is that the family members who are not actively involved in the management of the FLP may have limited control over the assets.

Overall, an FLP can be a valuable tool for families who want to protect their assets and reduce their taxes. However, it is important to weigh the benefits and disadvantages of an FLP before making a decision about whether to use this type of entity.

Here are some additional details about FLPs:

• An FLP is typically structured as a limited partnership, with one or more general partners who are responsible for managing the partnership and one or more limited partners who are passive investors.
• The general partners of an FLP can be individuals, trusts, or corporations. The limited partners can only be individuals.
• The assets of an FLP can be anything of value, including real estate, businesses, and investments.
• The income of an FLP is taxed at the individual level, with each partner's share of the income taxed according to their own tax bracket.
• FLPs can be used to make gifts of assets to the next generation without triggering gift taxes. However, there are limits on the amount of gifts that can be made each year without incurring gift taxes.
• FLPs can be used to provide asset protection for the family's assets. However, there are some exceptions to this protection, such as creditors who have obtained a judgment against a family member.

If you are considering using an FLP, it is important to consult with an experienced estate planning attorney to discuss the specific benefits and risks of this type of entity.