Planning for your estate and the good of your family is often a game of give and take. In addition, it can be a question of how much and when. Namely, you want to give away your assets but not just yet. As is so often the case, where there’s a need there’s a tool. A particularly powerful tool in this case is the Family Limited Partnership (FLP). An FLP can do double duty as a tool for asset protection as well as for estate planning.
Family Limited Partnerships have long been a useful tool for many, but Forbes recently offered a helpful perspective in an article titled “How To Protect Your Assets Without Giving Up Control.” You see, the FLP represents a way to separate control from direct ownership of assets. Those in business will understand the benefit of indirect ownership quite clearly. Indirect ownership is the essence of forming an entity to structure a business – an LLC or a corporation, for example – which protects the owner(s) from liabilities, creditors and the like, and often vice versa.
A Family Limited Partnership is, in reality, a form of a Limited Partnership. The distinction is that unlike a true business partnership, you would use your FLP to protect the assets you plan to give to your loved ones after you're gone but want to stay in control of while you are able. How does that work?
Limited partnerships allow for different types of partnership stakes: general partnership interests are vested with all the control, while limited partnership interests just represent ownership without control. Even if the limited partnership interests outweigh the general partnership interests 99 to 1, the general interest retains control.
This arrangement has a business use, but in a family it means that the parents can own all of the general partnership interests while gifting limited interests within a Family Limited Partnership that owns all of the assets. The parents stay in control of the asset even as their children are gifted ownership, and creditors have a difficult time reaching the assets. There are even tax benefits when it comes to gifting the FLP assets.
There is a great deal of finesse required to make an FLP arrangement work. Nevertheless, in its basic form the benefits are obvious with the need for competent counsel an equally obvious part of this complex plan's success.
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning
Reference: Forbes (March 18, 2014) “How To Protect Your Assets Without Giving Up Control”