What Are the Problems with a Family Limited Partnership?

The second is control. Print Email. The basics of an FLP Generally speaking, once you establish an FLP, you can contribute assets such as marketable securities, real estate, and private business interests in exchange for general and limited partner interests. That is generally going to be a very hard sell in the case of any FLP.

Transferring Family Wealth? Consider a Family Limited Partnership Minnesota Business Magazine

Photo Credits woman in stress image by csaba fikker from Fotolia. Business Succession Planning. And to avoid IRS scrutiny, the general partner needs to obtain valuations of the underlying assets and the limited partnership interests.

One or more members of the family are named as general partners. For transfers that exceed the lifetime gift exemption, the IRS may assess a gift tax. Thus, a limited partner is liable only to the extent of his initial investment in the partnership.

This does not mean that FLPs should be avoided--they are a very useful tool with advantages that cannot be found elsewhere--but there should always be a primary reason, other than estate tax reduction, to use them.

Related Articles. The FLP interests can be given to children and other relatives. This report will alert you to some of the problems and benefits attributable to the Family Limited Partnership insofar as estate planning is concerned. As general partners, the couple can set stipulations in the partnership agreement in order to protect these gifts from being squandered or mismanaged. Potential investors are not buying the assets of the partnership.

Griffin, Dana.

Family Limited Partnerships

When implemented incorrectly, an FLP can make your future planning even more stressful. Learn how and when to remove these template messages. With the use of part of their gift exemption, there is no gift tax. Articles lacking in-text citations from July All articles lacking in-text citations Wikipedia articles needing context from October All Wikipedia articles needing context Wikipedia introduction cleanup from October All pages needing cleanup Articles with multiple maintenance issues.

The unitrust would last for the life of each child. First, they are general partners and they have control. Some general partners receive a cut of profits, while others get a fixed annual salary. About the Author Dana Griffin has written for a number of guides, trade and travel periodicals since Generally speaking, once you establish an FLP, you can contribute assets such as marketable securities, real estate, and private business interests in exchange for general and limited partner interests.

This strategy essentially transfers the estate tax liability to the surviving spouse's estate, and defers estate taxes. What typically results is that a creditor ends up with income recognition, but the partnership either ceases or greatly reduces distributions. After transfer of the real estate, they employed a qualified appraiser to value the limited partnership interests. But where the FLP is pursuing legitimate business concerns, the donor of the property realizes adequate consideration for the contribution despite the disparity in values.