Part One

Within their limitations, Family Limited Partnerships (FLPs) should play a role in a family’s estate and asset protection planning. Here are few simple rules about correctly using FLPs:

Control at the General Partnership level – Usually whether a FLP works or not when challenged by creditors is determined by whether the General Partnership (GP) is able to avoid collateral attacks by creditors. At the same time, if the GP is not structured correctly, then control of the FLP can be lost. Therefore, it is extremely important that the GP be structured correctly.

Don't overuse -- The Family Limited Partnership is one of many asset protection techniques available and it should not be overused or made into a single large target. Consequently the percentage of the client's total assets going into a FLP structure should ideally either be less than 25% and not more than 40% except in unusual circumstances. Try to steer clear of promoters trying to place everything into the FLP.

Diversify – It is far better to have several smaller Family Limited Partnerships than having one oversized one. A good rule to follow is to have a new Family Limited Partnership created for every $2 to $5 million in assets. This keeps each FLP profile lower for both creditors and for any IRS audits.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.