Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs)
During the past year, there have been several important cases published which involved both family limited partnerships and family limited liability companies providing guidance for high net worth families desiring an efficient means for transferring their wealth to younger generations. A family limited partnership (FLP) or family limited liability company (FLLC) may be used to advance the following goals:
· Consolidating investment assets to promote efficient and centralized management of these assets.
· Protecting family members’ interests from economic misfortune or divorce, while at the same time providing a wealth transfer mechanism for multi-generational planning.
· Providing professional management of financial benefits that enhance family members’ incentive to lead productive lives.
· Providing both convenience and privacy for family members desiring to make gifts of assets that would be difficult to divide, and relieve any guardian, conservator or trustee from the responsibilities of investment.
· Curtail disputes regarding management and asset disposition that would otherwise be owned by multiple family members.
· Providing transfer tax leverage by eliminating assets from an estate at a low gift-tax cost, while permitting future appreciation in value to pass to chosen beneficiaries transfer tax-free.
The following are among the leading principles established by cases that were published this past year for families who seek to achieve asset preservation and wealth management goals through FLPs and FLLCs:
· The FLP or FLLC must be operated as an actual business, including maintenance of accurate records, proper titling of assets, and compliance with applicable laws and the partnership or operating agreement.
· Assets that are transferred to the FLP or FLLC should not be used for the transferor’s personal use (e.g., residential property), nor leave the transferor without sufficient assets to maintain his accustomed lifestyle without having to rely upon distributions from the FLP or FLLC.
The FLP’s general partner (or FLLC’s chief manager) should actively manage the entity’s assets and business affairs and should ensure that the entity’s funds are not interchanged with any personal assets.
Family Limited Partnerships