Family Limited Partnerships: The Basics
What is a Family Limited Partnership? Will it offer asset protection? Will it help during bankruptcy? Where do I get a family limited partnership? Should I get one?
The above are just some of the questions regarding family limited partnerships. Family Limited Partnerships are arguably the largest and most powerful estate planning tool to have in your arsenal for asset protection. At the same time, it can be the most dangerous. Family Limited Partnerships are generally used along with other estate planning tools and are very precisely implemented and operated. If not done correctly, your asset protection plan from bankruptcy will become useless. This helps to prevent extra scrutiny from the Internal Revenue Services, creditors or a bankruptcy trustee. A wide range of benefits gives the family limited partnership its popularity and power.
Foreclosures and Charging Orders are used by creditors to get around the shield of a family limited partnership, even after a bankruptcy discharge. It is for this reason, it is vital that an individual should never directly hold an interest in a family limited partnership, instead it should be owned by a trust. This partnership is comprised of a least one limited partner and one general partner. The general partner remains liable for the partnership obligations and they also make the decisions regarding the allocation of income. The limited partner have much more limited liability and control. The partners will be taxed on the portion of income that is allocated to the partners. The general partner has the responsibility of allocating to lower bracket limited partners.
In general, the family limited partnership is a very powerful tool to help with asset protection from bankruptcy or other issues. However, it is important to remember, a family limited partnership is one which requires a lot of advice to plan, draft, establish and operate carefully or correctly. Consult an attorney to draft your documents.
No advice is given or intended. This article is not to be considered legal advice. Ian Filippini is not a bankruptcy attorney. Filippini Financial Group, Inc. is not a law firm.
Ian Filippini, Alfred Filippini (deceased) and Deborah Filippini, have lived in the Montecito (Southern California) area. Ian Filippini’s youngest brother, Alex Filippini, did used to work for Filippini Financial Group, Inc.