How to Create a Family Limited Partnership
Financial planners commonly refer to family limited partnerships, or FLP's, but the term is not used by the Internal Revenue Service or in legal statutes. It is a limited partnership formed to hold a family's investments or business ventures, given by the parents to the children, so that those interests will receive substantially lower estate taxes when the parents die.
Although setting up an FLP will require the help of an attorney or financial planner, the benefits are worth the initial cost if the plan is used properly.
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Instructions
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Choose an attorney or financial planner to draw up the FLP, if you do not already have one. You may check online through the National Association of Estate Planners and Councils (NAEPC) website, or find a list of estate attorneys or financial planners in your area. You will need to verify the individual's credentials and ask for the individual's experience and formal training in setting up an FLP.
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Choose a name for the FLP, and verify with your secretary of state that the name is free to be used, not a duplicate. You will also need to choose a designated "Agent for the Service of Process," the individual who is authorized to receive service of any lawsuit papers. This can be any family member who lives in the state where the FLP is created; or you may hire a company to act as a designated agent.
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Complete a Certificate of Limited Partnership form, which can be obtained from the secretary of state's office, or the individual creating the FLP for you. List the names and addresses of all general members to the partnership--usually the older members of the FLP, or parents. Submit the fee for the certificate, which could be $85 to $125 or more.
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Follow up to make sure you receive a certified copy of the certificate, and that it is stamped with the filing date.
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Transfer assets through the assistance of the planner once the certificate is received, such as real estate, cash, equipment or stock. Items with titles (such as vehicles) and deeds (real estate) will need to be renamed to show they are now owned by the FLP. Different items can be controlled by any of the general partners--for example, parents may control real estate, while an adult child may control vehicles. This will be determined with the help of the individual drawing up the plan.
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Maintain the plan, keeping track of all assets and making sure they are properly moved into the FLP. Speak with your financial planner or attorney whenever you purchase another asset to verify if it can be held within the FLP. If it can, transfer it immediately. Review the assets every six to 12 months to ensure you have the best possible protection for the estate.
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Tips & Warnings
FLPs cannot hold an individual's home, retirement funds or any life insurance policies. But they provide asset coverage that cannot be found elsewhere.
You must have one certified copy of the Certificate of Limited Partnership form to open a bank or brokerage account, or to buy and sell real estate for the partnership.
