Let’s look at the details.
Anyone can be the target of a lawsuit, but there are people who are in certain professions who are particularly exposed. These would include landlords who can be sued by tenants who are injured on rental property.
Physicians are also vulnerable, because malpractice suits are not uncommon. Doctors are sometimes viewed as “deep pocket targets” by litigious types, so asset protection is a priority.
A family limited partnership can be used to protect your assets if you are concerned about legal claims against you. If you create a family limited partnership, you are going to be the general partner. Members of your family can be added as limited partners.
With a family limited partnership, you do not have a democracy. The general partner controls all decision-making. (It should be noted that there could potentially be multiple general partners.)
When you convey assets into a family limited partnership, you are no longer the direct owner. To provide a practical example, let’s say that you conveyed an apartment building into a family limited partnership. If someone wanted to sue the owners of the apartment building, they would be suing the partnership. As a result, your personal assets would be out of play.
You could have multiple different family limited partnerships to limit your exposure all around. If you were a physician who owned an apartment building, you could have your medical practice in one family limited partnership, and you could have your apartment building in another.
On the other side of the coin, assets that have been conveyed into the partnership would be protected from legal actions against any of the partners.
Estate Tax Efficiency
There is a federal estate tax, and it carries a $5.34 million exclusion or credit. Anything that you want to transfer that exceeds this amount is potentially subject to the federal estate tax.
Family limited partnerships can facilitate asset transfers among partners at a tax discount. You could also use the $14,000 per person, per year gift tax exclusion to distribute partnership shares to family members free of taxation.
Free Report on Family Limited Partnerships
In this post we have provided some facts about family limited partnerships. To obtain more in-depth information, download our free report on the subject.
Click this link to access your copy of the report: Family Limited Partnership Report.
Free Estate Planning Consultation
If you would like to learn more about asset protection and tax efficiency strategies, our firm can help. We offer free consultations to our neighbors in the greater Rochester area, and you can request an appointment through our contact page.