The Benefit of Family Held Entities
Family limited partnerships (FLP) and family limited liability companies (FLLC) are entities commonly used by families of significant wealth for purposes beyond business such as for creditor protection, tax and wealth transfer planning, family office structure and succession planning. The entity is typically held by only family members with the purpose of owning the family's assets such as business interests, real estate portfolio, liquid assets and/or privately held securities. In general, if structured properly and respected as a separate entity, family held entities may be useful vehicles for strategies seeking to reduce wealth transfer taxes while also allowing the wealth creator to continue to maintain some level of control over the entity held assets.
For the FLP, the typical structure consists of a general partner (GP) and a limited partner (LP). The GP is responsible for the management of the FLP and the LP holds an economic interest in the partnership with no authority to manage the FLP. The GP manages the day to day assets and operations of the FLP while, the LPs are merely passive owners. The GP may be the wealth creators or another entity such as an irrevocable trust or an LLC to shield them from further liability arising from potential risks of the FLP. In most situations, the LPs are restricted from transferring their LP interest with an exception for transfers to immediate family members or to trusts for their benefit. LPs must receive any pro rata distributions if made and also allocated their share of partnership income; and their liability is limited to the investments in the partnership.
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