What are family limited partnerships? They are a type of tool that many couples and families with substantial assets and property use that that provide tax benefits in addition to protecting what we will refer to as “the family fortune.”
A family limited partnership (FLP) is set up by an attorney specializing in estate planning. The partnership must have a stated business purpose and will be “peopled” by general partners and limited partners. The partnership agreement will also include specific restrictions on control, partnership interests (amount of assets owned), and other issues, including termination. Like some other types of partnerships, a FLP is a pass-through entity, which means that all partnership income (and associated deductions) pass directly to the partners.
The creation of a family limited partnership allows a parent or grandparent, during their lifetime and/or after their death, to make gifts to family members while retaining control over the assets that comprise the gift. These gifted assets, which can take the form of cash, real estate, and/or securities, are also protected from the recipient’s, or donee’s, or beneficiary’s (all the same person) creditors and/or spouses, an advantage in common with some trusts that help keep the family fortune in the family. For the donor (giver) as well as the donees, the tax benefits of a family limited partnership are based upon the valuation of the transferred assets; since this blog is presenting only a condensed overview, we will respectfully leave the full explanation of valuation discounts and the like to estate planning attorneys, tax attorneys, and accountants.)
Another estate planning financial entity, the family limited liability company, or FLLC, shares some similarities with a family limited partnership. However, the FLLC carries other limitations in regards to taxes and liability issues. A qualified attorney can explain which entity, a family limited partnership or an FLLC, is appropriate for a client’s particular financial situation.
Dinnebier & Demmerle, Orange County’s premier family law specialists,offer extensive experience in matters relating to divorce. What we bring to the conference table can make all the difference in securing the best possible legal outcome for our clients. If you have questions about California divorce law and where you stand in relation to issues such as these, please call us at your convenience to set up a consultation. We’re located close by, in Tustin. Just call 714-598-3714.
Our next posting will discuss some issues relating to family limited partnerships and divorce.