Planning for your estate and the good of your family is often a game of give and take. In additions, it can be a question of how much and when. Namely, you want to give away your assets ... but not just yet.
A particularly powerful tool in this case is the Family Limited Partnership (FLP). An FLP can do double duty as a tool for asset protection as well as for estate planning.
Limited Family Partnerships have long been a useful tool for many, but Forbes recently offered a useful perspective in an article titled “How To Protect Your Assets Without Giving Up Control.”
You see, the FLP represents a way to separate control from direct ownership of assets. Those in business will understand the benefit of indirect ownership quite clearly.
Indirect ownership is the essence of forming an entity to structure a business – an LLC or a corporation, for example – which protects the owner(s) from liabilities, creditors and the like, and often vice versa.
A Family Limited Partnership is, in reality, a form of a Limited Partnership. The distinction? You just use it for family assets like a house, individual assets, and anything you’d want to control even as you protect it and slowly gift it away.
Well, how does that work?
Limited partnerships allow for different types of partnership stakes: general partnership interests are vested with all the control, while limited partnership interests just represent ownership without control. Even if the limited partnership interests outweigh the general partnership interests 99 to 1, the general interest retains control.
This arrangement has a business use, but in a family it means that the parents can own all of the general partnership interests while granting out limited interests to the Family Limited Partnership that owns all of the assets. The parents keep control, the children slowly/eventually take on ownership, and creditors or claimants have a harder time touching the assets.
As you might have guessed, there are even tax benefits when it comes to bequeathing or gifting the FLP assets in Overland Park and elsewhere.
There is a great deal of finesse required to make an FLP arrangement work. Nevertheless, in its basic form the benefits are clear. Both in determining the structure of the FLP and in actually setting it up, competent counsel can mean all of the difference between a fully balanced and solid plan, and a potential mess.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Forbes (March 18, 2014) “How To Protect Your Assets Without Giving Up Control”