Setting up a family limited partnership (FLP) is a popular choice for managing and passing on family assets. Understanding the pros and cons will help you make informed decisions that fit your family’s needs and goals.
Benefits of a family limited partnership
A family limited partnership can protect your assets from creditors. When you put assets into the partnership, the FLP owns them, not you personally. This setup helps keep your assets safe. Additionally, FLPs make it easier to transfer wealth to younger family members while letting senior members stay in charge. This means you can still control the usage of assets.
Another benefit is the potential for saving on estate taxes. By moving assets into an FLP, you might lower the value of your estate, which can reduce the taxes owed when you pass away. This is particularly helpful in Oklahoma, where estate taxes can impact how much wealth is transferred to heirs.
Drawbacks of a family limited partnership
Despite these benefits, FLPs come with some challenges. Setting up and managing an FLP can be difficult. The legal and administrative steps might be overwhelming if you’re not familiar with them. Also, the IRS might look closely at FLPs, especially if they think the partnership is being used to avoid taxes. Careful planning is necessary to avoid issues with tax authorities.
Another potential problem is family disagreements. With multiple family members involved, conflicts over partnership management or asset division can occur, which might strain family relationships.
Weighing your options in estate planning
If you’re thinking about a family limited partnership, consider both the benefits and the challenges. While FLPs can offer significant advantages in estate planning, they require careful setup and management.