A family limited partnership (FLP) is a legal entity that allows family members to pool their assets and manage them jointly, while still retaining the benefits of limited liability. Estate planners and asset protectors often use these partnerships as a tool.

Advantages

One of the main advantages of an FLP is that it allows family members to share ownership of assets while still maintaining control over them. This can be particularly beneficial for families that have multiple generations involved in the management of their assets. For example, parents can establish an FLP to manage assets for eventual transfer to their children while retaining decision-making power over those assets.

Another advantage of an FLP is that it can provide a significant tax benefit. By establishing an FLP, family members transfer ownership of assets into the partnership, taxed as a partnership instead of individually. This can result in a significant reduction in taxes for the family.

Disadvantages

However, there are also some potential downsides to an FLP. One of the main concerns is that the partnership agreement may be too restrictive for some family members. For example, requiring a majority vote for all decisions can make it difficult for minority members to influence outcomes.

Another potential downside of an FLP is that it can be difficult to dissolve the partnership. Unlike corporations, which shareholders can dissolve through a vote, dissolving an FLP requires all partners’ agreement. This can make it difficult for family members to separate their assets if they decide they no longer want to be in the partnership.

Another concern is that the partnership agreement may be too restrictive for some family members. For example, if the agreement states that all decisions must be made by a majority vote, it could be difficult for a minority member to have their voice heard.

There are also some potential legal issues that may arise with an FLP. For example, a poorly drafted partnership agreement could face legal challenges, and a court could dissolve a partnership not operated according to its agreement.

Despite these potential downsides, an FLP can be a useful tool for families that want to manage their assets jointly while still retaining the benefits of limited liability. Consulting a legal professional is crucial to ensure proper drafting of the partnership agreement and adherence to it in managing the partnership.

In Conclusion

Overall, family limited partnership is a great way to manage family assets and pass it on to the next generation while also enjoying the tax benefits. However, it is important to keep in mind that it has certain downsides as well like restrictions on decision making and dissolution of partnership. It is always recommended to consult a legal professional before creating an FLP and ensure that the partnership agreement is drafted properly and the partnership is run in accordance with the agreement. Contact Brenden Kelley Law at 216-644-3359 to schedule a consultation.