Part Three

Having the parent’s Living Trust as the General Partner – Another variation of the foregoing has the parent forming a revocable grantor trust (also known as a Living Trust) acting as the General Partner. The problem is that a knowledgeable creditor goes to the court and asks for an order which compels the parent to revoke his Living Trust, thereby making him the direct General Partner of the FLP with all the problems that it involves. The same problem exists for structures making the GP a corporation or a Limited Liability Company (LLC) which is wholly-owned by the parent’s living trust, since revoking the living trust places the creditor in control of those entities, and ultimately in control of the Family Limited Partnership.

Having an individual as General Partner – Should an individual die, or is sued, management of the Family Limited Partnership may be thrown into disarray and there is potential for an heir or creditor to take control of the assets of the Family Limited Partnership. Therefore, it is a very bad practice in making an individual the General Partner of a FLP.

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