Part Two

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

Treat the Family Limited Partnership as a business entity not a family trust – The Family Limited Partnership must be treated as a business entity only, and should never be used as a family trust. All investment holdings of the FLP should be for business or investment purposes, and payments made by the FLP should assist those purposes. Never use an FLP used for personal family reasons such as mortgage payments or for funding college. If money is required from the FLP, then it should be borrowed from the FLP at current interest rates or distributed to the various trusts holding the interests, and from there given to family members.

Have a good operating agreement and good law – A key to a successful Family Limited Partnership is having a good operating agreement custom-tailored to the family business. It is also important that the FLP is formed in a jurisdiction limiting the creditor’s remedy to a charging order, and does not allow easy liquidation of partnership interests to satisfy creditors.

Have the trusts own your children’s Limited Partnership interests – With a little more work, the Family Limited Partnership can provide a great deal more asset protection if the Limited Partnership interests are conveyed to spendthrift trusts formed for the children.

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.