Asset protection is a source of concern for people that are vulnerable to lawsuits for one reason or another. Some professionals would fit into this category, along with business owners and people that have investment property.
The family limited partnership can be a very effective asset protection tool for many of these individuals. Let’s look at the details.
FLP Basics
There is an inherent balance that you have to strike when you are thinking about asset protection. On the one hand, you have to divest yourself of direct ownership, but you do not want to lose control of your resources.
With a family limited partnership (FLP), you effectively control everything, but you own nothing, and this is the sweet spot.
As the name would indicate, the participants in a family limited partnership must be members of the same family. If you establish the partnership, you would be the general partner, and family members that are brought into the fold would be limited partners.
The general partner would make all decisions, regardless of the interest percentages held by the general partner relative to the others. This is where the absolute control lies.
Example Utililzation
Let’s look at a simple example to demonstrate the efficacy of FLPs. Let’s assume that you are a doctor, and you own your own practice and two apartment buildings. Of course, you have bank and brokerage accounts, and you own your own home.
You could potentially be the target of a malpractice suit or someone could get injured when they are in one of your apartment buildings. In either situation, you are vulnerable. Under these circumstances, you could utilize multiple family limited partnerships to protect your assets.
You can convey the buildings into separate family limited partnerships. If someone is injured in one of the properties, the other building would be protected. All of the personal assets that are owned by the partners would be protected as well.
You can place your brokerage and bank accounts into a separate family limited partnership that contains low-risk assets, and you can place your home in yet another FLP.
You could designate your practice as a professional corporation, and a separate family limited partnership would hold all the stock. If you are ever personally sued, the profits would be directed into the family limited partnership.
This approach would provide absolute protection across the board, and this is why family limited partnerships are widely utilized by people that are looking for asset protection solutions.
Estate Tax Considerations
We have a federal estate tax in the United States that is applicable to asset transfers that exceed the exclusion. In 2022, the exclusion is $12.06 million, and the maximum rate is 40 percent.
If you have estate tax concerns, you can transfer assets among the partners in a family partnership at a tax discount. The utilization of the $16,000 per year gift tax exclusion would be part of the solution.
Check Out Our Asset Protection Worksheet
There are hundreds of additional blog posts on this site you can explore, and we have other written materials. You can learn a lot from reading our carefully prepared asset protection worksheet.
Take Action Today!
At some point, it’s time to establish an estate plan with the help of an Oklahoma City estate planning attorney. If that time is now, we are here to help. You can send us a message to request a consultation appointment, and you can reach us by phone at 405-843-6100.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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