Part Two

Can the FLP assist me in transferring control to my children?

Yes. The Family Limited Partnership is the perfect medium for transferring control of the family business and/or property to your children either quickly or gradually as you wish. Frequently, the first step in developing children’s responsibility is to provide them with a small share of the family business that will attract and develop their interest. The Family Limited Partnership is flexible enough to allow you to transfer control and responsibility for the business as you see fit.

When and why should I begin making gifts to my children?

After establishing the Family Limited Partnership, you could use your Family Limited Partnership as part of your estate plan to make “discounted” lifetime gifts to your children. The other alternative is to hold the interest in your Family Limited Partnership until one of you dies, after which time the survivor could start making gifts of the limited partnership interests to the children. This second use of a Family Limited Partnership has a double benefit; the survivor receives a full step-up in basis of the underlying partnership assets for income tax purposes after the first death, and following the death of the survivor the limited partnership interests could be discounted for estate tax purposes.

How can a Family Limited Partnership help me make discounted lifetime gifts?

If you establish a Family Limited Partnership and later make lifetime gifts of the limited partnership interests to your children, the limited partnership interests would entitle your children to all economic benefits from their gifted partnership interest, but without any management authority in relation to the partnership property. Because of the restriction discussed above, the limited partnership interest has a reduced value. The value of any limited partnership interest given to your children during your lifetime will be removed from your estate for estate tax purposes. After your death, only the value of your general partnership interest and any remaining limited partnership interest you still own will be able to be included in your estate for estate tax purposes.

Restrictions on transfers as referred to above, has an added benefit when the limited partnership interests are gifted to your children, since the restriction provides some protection from a child’s judgment creditor (such as a divorced spouse). A child’s creditor will not be allowed to reach the underlying partnership assets in order to satisfy a judgment, but more exactly will only be entitled to the child’s economic interest in the partnership, i.e., the right to partnership distributions.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.