What is a family limited partnership?


A family limited partnership is an estate planning tool that can protect business assets, allow equity transfers and remain a business entity.

Not all Texas residents take the time to make an estate plan. According to AARP.com, 6 out of 10 adults in the country do not have a living trust or will. As people age, the likelihood of them having a will or trust increases, but some may wait too long to start estate planning. Some individuals may avoid the topic because it is uncomfortable, but others may simply not know the best way to plan for their end of life. Understanding the various tools available can make creating an estate plan easier.

Protecting assets

When a husband and wife own a business, they need to make extra considerations when creating a will. Many business owners may want to protect the equity for their children. The business-owning parents can create a family limited partnership to make it easier to transfer equity to family members while still protecting the property from their children’s failed marriages, creditors and high taxes. While the assets transferred to children may be taxed, it is usually at a lower-than-normal rate.

Transferring to family

Parents may worry about transferring business-related equity to their children before retirement because control of the company could be lost. Once the FLP is created, however, the parents are able to make transfers to their children without worrying about giving away control of the business because only equity is given. This partnership divides a business into general partner, which retains control, and limited partner, which provides financial interests. The person who started the partnership can retain control or choose to name a successor who takes over the role of general partner. The general partners can even create trusts within the FLP to ensure young children or grandchildren will be taken care of in the event of a death.

Acting as business entity

An FLP has to be treated like a business entity by those who are a part of it. This means that the couple who creates it cannot put all of their property and finances into the partnership. Some items should never be included in an FLP, including the following:

  • Family home
  • Personal vehicles
  • Vacation home
  • Private art collection

Instead, only business possessions should be included in the partnership. Anyone who creates an FLP must keep enough assets out to maintain their lifestyle. If the FLP is comingled with personal assets, all of the properties could be subjected to estate tax.

Texas business owners may be able to start transferring their estate through a family limited partnership. Because of the technical aspects of an FLP, it may be beneficial for anyone interested in this type of estate planning to work with a knowledgeable attorney.

Robert M. Mendell

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