The Family Limited Partnership Part 1
The Family Limited Partnership (FLP) has been a primary asset protection tool for many years. Originally designed as a tax savings strategy to shift income to lower bracket family members, the FLP is now widely used to reduce estate taxes (where applicable) and protect accumulated wealth from potential claims.
It’s important that you know an FLP in and of itself is not the “be all end all” asset protection strategy. It does have it’s benefits however and we feel it’s important to detail it for you here.
An FLP is simply a limited partnership with special features designed to create tax savings and/or accomplish other asset protection goals. It is set up in such a way that you, or you and your
spouse, are general partners in the business in question, each owning a small (1%-2%) interest. “Safe assets”—those not likely to produce liability—such as bank and brokerage accounts, as well as other passive investments (not real estate), are generally transferred into the FLP.
The FLP works well for asset protection because the laws in every state do not permit a creditor to seize or collect against property held by the partnership. The property transferred to the FLP is generally safe from attack, but the creditor may attempt to reach your ownership interests in the partnership.
Although an FLP on it’s own does offer substantial added protection to protect against collection activities, such as “charging orders” and foreclosure, the limited partnership interests in the FLP are usually protected by using a Trust in conjunction with the FLP.