Family Limited Partnerships

Family Limited Partnerships (FLPs) by Fishbein Law Group

A Family Limited Partnership (FLP) is one of the most effective asset preservation, protection, and estate planning tools. While you “can’t take it with you,” placing your assets into an FLP allows you to legally and effectively shield everything you own from creditor claims. This strategy ensures your future financial security and asset protection, which is particularly important for licensed professionals like doctors, engineers, and business owners.

Primary Goal: Asset Protection

The main objective of asset protection is to safeguard personal wealth from potential threats, including creditors. “Assets” encompass a wide range of property, such as homes, cars, jewelry, business interests, cash, investments, and real estate.

“Creditors” are broadly defined to include existing creditors and potential ones, such as litigants, soon-to-be ex-spouses, disgruntled business partners, or anyone who might have a claim against you, even if they haven’t yet pursued it. Creditors may also include government agencies like the IRS.

The FLP’s effectiveness in providing asset protection is grounded in law. The Revised Uniform Limited Partnership Act (RULPA), adopted in all fifty states, establishes that assets owned by a limited partnership are not considered the personal property of individual partners. As a result, those assets are shielded from attachment by a partner’s creditors. Once assets are contributed to an FLP, they are no longer personally owned by the contributor, and creditors cannot attach them simply because they hold a judgment against an FLP partner.

The Core of Asset Protection Planning: Control Everything, Own Nothing

An FLP is a joint venture among family members with both general and limited partners. As the client, you (and your spouse) or a separate corporate entity controlled by you (and your spouse) typically serve as the General Partner who manages and controls all aspects of the FLP and its assets.

The General Partners make all decisions for the FLP, including whether to buy or sell assets, what investments to pursue, and whether to distribute profits. They also have the authority to dissolve the FLP. As General Partners, you and your spouse retain control over the assets and continue to make decisions just as before, even though legal ownership has been transferred to the FLP.

The limited partners, often your children or a revocable trust, do not have the same control as General Partners. It’s important to note that General and Limited Partners cannot be the same individuals. However, a separate entity like an LLC, owned and controlled by you and your spouse, can fulfill the role of the controlling party, thus meeting this requirement quickly.