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Understanding the Family Limited Partnership For many families, the family limited partnership or "FLP" is the cornerstone of their estate plan. It enables the senior generation to transfer ownership of assets to children and grandchildren while, at the same time, retaining control of and shielding these assets from the potentially harmful effects of divorce, death, or the financial difficulty of a family member.
The FLP allows the family to coordinate and consolidate the management and investment of its assets, while at the same time, providing for: - a cohesion investment policy,
- continuity of family ownership, and
- education in business and investment strategy for the younger generation.
The requirements for maintaining the records of an FLP are not difficult to observe; however, it is important that the formalities be observed so that the new entity will be recognized for both tax and limited liability purposes.
Recent IRS challenges to the validity of FLPs emphasize the importance of the following guidelines: - Read your partnership agreement and understand and comply with its terms.
- Fund your FLP with sufficient cash to maintain any real estate or other non-liquid assets.
- Establish separate bank accounts for the FLP (and its General Partner, if it is a corporation or LLC).
- Establish and maintain separate capital accounts for each partner.
- Maintain accurate records of FLP transactions and prepare an annual report.
- File the appropriate tax returns for the FLP (IRS Form 1065).
- Make distributions from the FLP to the partners in accordance with their respective ownership.
- Never pay a partner’s personal expenses from the FLP account.
- Maintain active status with the state by filing the required annual reports.
Most importantly, involve your attorney and accountant in the process of forming your FLP and continue to consult them on a regular basis. Cox & Nici’s Strategic Estate Planning System™ provides a cohesive estate planning strategy which takes advantage of the benefits of an FLP to achieve your family’s ongoing goals. Our Annual Maintenance Program offers continuing support to maintain your FLP in accordance with the law.
Thank you for reading this issue of the Cox & Nici E-News. Please visit our website or call us for more information regarding this subject or to answer any other questions you may have.
Sincerely,
email: contact@coxnici.com
phone: 239-254-0706
web: http://www.coxnici.com
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