A Family Limited Partnership (FLP) is a valuable estate planning tool for many individuals and families. An FLP is not limited to wealthy individuals and high-net-value estates. With an FLP, you can accomplish many of the estate planning goals that are important to you with one estate planning vehicle. A Texas estate planning lawyer provides the guidance necessary when setting up an FLP to ensure that the FLP complies with all relevant laws and accomplishes your estate planning goals.
What Are Some Advantages of a Family Limited Partnership?
Most individuals utilize a family limited partnership for one or more estate planning purposes. In most cases, an FLP meets the goals of:
- Asset Protection
- Avoiding Probate
- Business Succession Planning
In some families, parents establish FLP as equal partners. At some point in the future, the parents begin gifting shares of the FLP each year to their children and grandchildren as limited partners. However, some families may begin the FLP by naming all adult family members as partners. The setup of the FLP depends on the financial and estate-planning goals and needs of the family.
Asset protection is one of the advantages and goals of setting up a Family Limited Partnership. When family members transfer property to the FLP or the FLP acquires property in its name, the property is not subject to the debts or liabilities of the “partners” of the FLP. Also, the assets of the FLP are protected from future bankruptcy cases, divorces, and lawsuits that a partner may face.
The FLP assets are not subject to probate. However, a person’s share in the FLP is subject to probate. Therefore, if parents intend to avoid probate by setting up the FLP, they would need to plan to transfer all interest in the FLP to their heirs before their death.
However, even if a parent or other partner of the FLP owns an interest in the FLP when the person dies, the share is probably worth much less than the actual assets owned by the FLP. The value of a limited partnership interest is discounted because of the lack of control over the interest and the lack of marketability of the interest.
Business Succession Planning
A Family Limited Partnership can be a valuable tool for business succession planning. A parent can set up the FLP for his or her business and begin transferring a limited interest in the business each year to a successor as the parent trains the successor to take over the business. The parent maintains a controlling interest in the business until he or she is ready to retire.
When the parent is ready to exit the business, he transfers the remaining interest to the successor. If the parent dies before transferring all interest in the FLP, the interest transfers according to the person’s will. As mentioned above, the interest in the FLP may be heavily discounted compared to transferring the actual business assets through probate.
Contact a Texas Estate Planning Attorney for More Information about FLPs
An FLP is an actual partnership, even though you are utilizing it as an estate-planning tool. To receive the benefits of an FLP, you must set up and maintain the FLP per IRS guidelines for partnerships. If you do not set up the FLP correctly, you could lose some of the benefits of an FLP. Schedule a consult with one of our experienced Texas estate planning and probate lawyers before attempting to use an FLP as part of your estate plan can help avoid costly mistakes.