As an asset protection attorney, Memphis, TN trusts, we can help guide you in how to best protect the personal assets you and your family have worked so hard for. In this post, we will share with you one strategy you can use in asset protection planning: The Family Limited Partnership.
An Alternative to the Limited Liability Company
The Family Limited Partnership is an alternative to the Limited Liability Company. However, when structuring a Family Limited Partnership, multiple entities are used to obtain similar benefits afforded to Limited Liability Companies. This makes the administration of a Family Limited Partnership-centered plan more difficult than the administration of a LLC-centered plan.
But, the Family Limited Partnership’s benefits include asset protection planning and valuation discounts for estate and gift tax purposes. The use of a Family Limited Partnership is an effective, ethical and legal way to minimize the disruption from attacks on your family wealth and to reduce the risks of being completely depleted by a lawsuit.
Protection Against Judgment Creditors
By using a Family Limited Partnership in a properly designed estate plan, you may be able to place a significant portion of your assets beyond the reach of judgment creditors, while still retaining complete control over those protected assets. A Family Limited Partnership is able to deflect judgment creditors away from the assets of the partnership. Under current state laws, creditors are only able to obtain a “charging order” against the partnership interest of the debtor partner, but cannot take the assets of the partnership to satisfy the personal debt of the partner.
Control Versus Ownership and Income
The Family Limited Partnership allows a family member to exercise complete control over a business or investment activity while passing the ownership and income to other family members. This entity form supports and encourages the retention of control of special family assets, such as businesses, investments, farms and other real estate, and inherited property.
Valuation Discounts for Tax Purposes
The Family Limited Partnership in many cases provides gift and estate tax reductions of the partnership interests based on valuation discounts applicable to their partnership interests. The value of the partnership interest after applying valuation discounts is the amount that is subject to gift and estate taxes, not the value of the assets that are owned by the Family Limited Partnership.
If you need help with asset protection planning, contact the trusted attorney today.
Thanks to our friends and contributors at Patterson Bray who have significant experience in business formation and organization.