Family Limited Partnerships: Control and Protection
Asset protection lawyers have been taking advantage of limited partnerships for hundreds of years. Limited partnerships originated from a time when European shipping businesses began to operate globally. The goal in creating limited partnerships was to allow multiple individuals or businesses to invest in a venture without being liable for the operator of the venture.
For example, if you owned a merchant ship and needed to raise capital for an excursion to the New World, you could raise that capital by taking on investors. Of course, your investors would want to minimize their risk exposure, so you would agree to take on the risk yourself, being an expert in the shipping trade and the party in control of the venture. Thus, limited partnerships were born. The partner who agrees to take on the risk is termed the “General Partner,” while investors are called “Limited Partners.”
A Creature of Asset Protection Statutes
Today, limited partnerships exist in the United States only as a creation of state statutes. These state statutes must be followed to the letter! The risk of not following limited partnership statutes fully is that all partners can become liable. That’s not good asset protection. Under most limited partnership statutes, the general partner has unlimited liability and full control of the partnership. The limited partners have limited liability and no control. The most a limited partner can lose is the amount of his or her capital investment.
Family Limited Partnerships
Family limited partnerships (“FLPs”) operate in much the same way as other limited partnerships. The “Family” in FLP is actually a tax designation. The I.R.S. has actually made it easier for families to pass assets along to their children through FLPs, which makes use of this type of entity attractive from the standpoint of asset protection and estate planning.
A typical family limited partnership will consist of a limited partnership that is wholly owned by a husband and wife, though this type of entity is not limited to married couples by any means. Likewise, the husband and wife will also own a majority of the limited partnership interest, either individually or through limited liability companies. As time progresses, additional family members can be added to the roster of limited partners and gain some tax advantages for the parents in the process, all while the creators of the FLP maintain total control and limited liability.
The best feature of family limited partnerships, however, is that they can be used in conjunction with offshore trusts to create bullet proof asset protection structures. If you have questions about how a family limited partnership fits into your asset protection plan, please contact Lodmell & Lodmell today.