Part One

The following are some of the common defects in Family Limited Partnership structures:

Failing to fund the Family Limited Partnership (FLP) – A good many individuals go to great lengths to form their Family Limited Partnership and are willing to pay a planner substantial fees to do so. However, they then fail to transfer any significant assets to it. Therefore, to the extent that these assets are not contributed to the Family Limited Partnership then neither are they given the tax or asset protection benefits of the arrangement.

Failing to maintain the Family Limited Partnership (FLP) – A limited partnership requires payment of annual fees. Failure to pay these fees can result in the entity eventually being stricken by the governmental entity that formed it in the first place. As far as the IRS and the state is concerned, If the entity is stricken, it ceases to exist.

Failing to follow formalities – Although they do not have the same level of formalities as corporations, limited partnerships are required to have Operating Agreements which are required to be followed. Failure to have an Operating Agreement or to follow could result in the FLP being disregarded by a court and treated as it never existed.

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