What protection is available through a family limited partnership?
A Family Limited Partnership ("FLP") is a limited partnership that is formed to manage and control jointly-owned family property. All the requisites of a limited partnership must be followed in order to have a valid FLP. Upon formation, the assets of the family are assigned or transferred into the FLP for ownership, management and control. In most FLP's, the parents are the general partners with a 1% interest, while the children and siblings share the remainder as limited partners. Thus the parents' exposure to risk of loss of property held by the FLP is greatly reduced. Even if a charging order is obtained by a creditor, the partnership can limit distributions (for legitimate purposes) to reduce exposure.
An FLP also can have a dramatic effect on gift and estate taxes. By transferring assets to a FLP, general partners can use valuation discounts to lower values. With lower valuations, the amount of tax imposed can be substantially reduced.
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