Families often share homes, vacations, holiday traditions, and fond memories. Sharing a business, though, is more complicated than shutting down the summer cottage together or planning next year’s family reunion. One type of family business is called the family limited partnership. It’s not just a business entity, though. It can be a powerful estate planning tool.
FLP (“Family Limited Partnership”) is an entity created to manage family assets. The general partner and limited partners are all family members. For tax purposes, ‘family’ includes spouses, children, ancestors (parents or grandparents), lineal descendants (children and grandchildren), and trusts created for the benefit of any member of the family.
A family limited liability company (“FLLC”) is similar to an FLP. The primary difference involves liability. While FLP’s are managed by general partners who have direct liability, the FLLC provides limited liability to all partners.
Care should be taken when transferring assets to an FLP or an FLLC. Certain assets may cause increased scrutiny from the IRS. Also, creating an FLP or FLLC may not be the best solution for your family, so consult with an attorney first.
There are several great reasons to consider creating an FLP or FLLC, including:
As with any strategy, there are some downsides, including:
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