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Family Limited Partnerships
A family limited partnership (FLP) is an entity owned by two or more family members, created to hold the accounts, properties, or businesses that were contributed by one or more of the family members. An FLP has at least one general partner who is responsible for the management of the partnership, has unlimited liability, and is compensated by the partnership for their work according to the partnership agreement. An FLP also has one or more limited partners who are permitted to vote on the partnership agreement but are not authorized to manage the partnership. The limited partners receive the income and profits of the partnership but have no personal liability for the partnership’s debts or obligations.
This estate planning strategy is useful because an FLP can help protect accounts, properties, and businesses held by the entity from your and your family’s creditors because those items are not owned by you and your family as individuals but instead are owned by the entity. If a creditor obtains a judgment against you or your family for a claim not related to the FLP, it is more difficult for the creditor to access anything that the FLP owns to satisfy that claim.
Also, because of its lack of control and restrictions on selling a partnership interest, the value of a limited partnership interest that you give to a family member can be discounted, allowing you to maximize your annual gift tax exclusion and lifetime estate and gift tax exemptions.