Starting a Family Limited Partnership

There is no one specific way to protect your assets. It is very personal to your situation based on your asset structure. Recently family limited partnerships have been very popular. Specifically there are many estate tax advantages when handing assets down from generation to generation.

A family limited partnership is a partnership in which all members are family members. It is a type of limited partnership formed by official filling with the Secretary of State. A Family limited partnership has its own tax identification number and is a separate entity from you individually. Any income flows through to the partners and is reported on their personal tax returns.

There are two provisions when dealing with a family limited partnership. There is a general partner and a limited partner. The general partner has all of the control but assumes all of the risk. The limited partners are usually the rest of the family members.

In order to create a family limited partnership a legal partnership agreement must be drafted. In simple terms it sets out the purpose of the partnership. Drafting this agreement is very critical and often set up by individuals incorrectly.

Unlike corporations, partnerships are not tax paying entities. Annual information is filed setting forth income and expenses but does not pay taxes on net income. Instead each partner’s proportion of that share of income is passed through to their tax return. Each partner then claims their own deductions.

To find out more about family limited partnerships and whether or not one would help with your personal asset protection, log onto pfbs.com.