There are many sound strategies to protect the wealth you and your family have accumulated over the years. If you have a closely held family business that you want to protect from creditors and estate taxes, your attorney may well advise the preparation of a family limited partnership agreement. Otherwise, there is a strong possibility that 50% of your wealth could go to the IRS instead of the family.
What is a Family Limited Partnership (FLP)?
You and other members of your family who are involved in running a business can benefit from a family limited partnership. The senior members agree how income from the business will be distributed, how much control each person will be given over it, and how rights to business appreciation will divided, among other important issues.
Main Benefits of the FLP
A FLP is tailored made to help senior members of a family business gift and manage business assets to their children active in the business, all without giving up control while they are still alive.Some additional benefits are:
- The ability to shelter assets and income from lawsuits and creditors
- Reduce business income taxes by incrementally transferring assets to lower earning family members
- Giving estate gifts of business assets at a discount to reduce estate taxes
- Greatly reducing estate and gift taxes overall
By naming the senior members the general partners, they maintain control and ownership of the business. The children, who are named limited partners, also benefit by being able to participate in the partnership and by retaining more partnership interests and tax benefits in the future.
Own Nothing, Control Everything!
The main benefit of a family limited partnership can be summed up by some famous words uttered by Nelson Rockefeller;
“The secret to success is to own nothing, but to control everything.”
No matter how much you gift or transfer to the family limited partners in the FLP, the senior general partners still own and control everything associated with the business, including its real estate and investment accounts. It can be a winning business decision for you!
Talk to our experienced business, trust, and estate attorneys at Spencer and Collier, LLC. to discover if the FLP can be a great option for you, your business, and your family.