- Controlled Distributions
General partners control the FLP and its distributions. Income and profits from the partnership do not have to be distributed. They can be reinvested.
- Control Over Limited Partners
General partners can restrict limited partners from transferring, selling or otherwise "losing" their ownership interest.
- Valuation Discounts
You can discount the value of limited partnership interests given to family members.
- Creditor Protection
Owning an interest in a limited partnership comes with a certain degree of built-in credit protection. A limited partner's creditor(s) cannot go directly after partnership assets or take a limited partner's interest in a limited partnership. Currently, the law only allows for a "charging order." This requires any monetary distributions from the LP to be given to that partner's creditor(s). To avoid this, the partnership can simply choose to reinvest earnings instead of making distributions.
- Arbitration for Dispute Resolution
An FLP can include an arbitration provision to resolve family conflicts among partners. The partners simply agree in advance to settle any disputes through arbitration.
- Buy-Sell and Right of First Refusal
An FLP agreement can include buy-sell and right of refusal provisions to prevent unwanted persons from becoming partners. A buy-out provision can stipulate that partnership interest may be purchased by other partners at the partnership's fair market value or at a discount.
- Asset Protection in the Event of Divorce
The FLP can be used to separate individual property from communal marital property. If a limited partner divorces his or her spouse, an FLP can protect the partner's ownership interest, ensuring it remains in the family.
Unlike an irrevocable trust, a family limited partnership is very flexible. A family limited partnership can be amended or terminated if all of the members agree to do so.
- Reduced Costs
Placing family assets in a single FLP costs less than placing them in several entities or trusts. This means there are fewer administration expenses involved.
- Intangible Assets
An FLP is considered an "intangible asset." This means it's likely that only your home state (state of residence) will be able to impose any inheritance tax on partnership units. This is ideal for real property owners who own property in several states.
Advantages of Family Limited Partnerships
- Advantages of an LLP
- Definition of a Limited Liability Partnership or LLP
- Disadvantages of an LLP
- Restrictions on Who Can Form an LLP
- Forming an LLP
- Differences between an LLP and a Limited Partnership
- Allocating Losses and Profits in an LLP
- Number of Owners Required to Form an LLP
- Reasons for Creating a Limited Partnership
- Advantages of Family Limited Partnerships
- Assets in a Family Limited Partnership
- Family Benefits from Family Limited Partnerships
- Definition of a Family Limited Partnership
- Estate Tax Credits and Family Limited Partnerships
- Taxing a Family Limited Partnership
- Family Limited Partnerships
- Setting up a Family Limited Partnership
- Partners in a Family Limited Partnership
- Advantages of a Limited Partnership
- Definition of a Limited Partnership
- Disadvantages of a Limited Partnership
- General Partners
- Limited Partners
- Taxing Limited Partnerships
- Definition of an Agreement
- Enforcing an Agreement
- Introduction to Agreements
- Basic Rules
- Common Terms of Agreement
- General Partnership
- Joint Venture Agreement
- Oral Agreements
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