Forming and properly operating a Family Limited Partnership (“FLP”) can be an effective asset protection and succession planning tool. At Waldron and Schneider, we help our clients form an FLP in 5 steps.

Step 1 – Set-up the FLP and the managing General Partner.

A management trust is set up to serve as the General Partner of the FLP and the initial Limited Partners are chosen. Our clients choose a name for their FLP and then we complete the documents needed to form the FLP. Our staff creates a corporate book for our clients which holds all of the formation documents, meeting minutes, tax returns, EIN confirmation and other important documents that corporations need to have organized and easily accessible.

Step 2 – Transfer assets into the FLP.

Once the initial structure of the FLP is formed, we work with our clients to identify the assets they want to transfer to the FLP. If real property is being transferred to the FLP, we draft and file the necessary deeds. We also work closely with financial planners to transfer funds and ownership of accounts that may be owned by an FLP. If business interest is being transferred to the FLP, we prepare the necessary corporate documents.

Step 3 – Place a value on the FLP ownership interest.

Once Step 2 is complete, we work with our clients to place a value on the ownership interest of the FLP by valuing the assets owned by the FLP. The valuation process differs based upon what types of assets have been transferred to the FLP. For example, if the FLP owns interest in a business, a formal valuation of the business may need to be done.

Step 4 – Set up trust(s) to become Limited Partners in the FLP.

This step involves setting up one or more trusts to become Limited Partner(s) in the FLP. Although listed as Step 4 in the process, it can be done at any time before Step 5. Typically, these trusts are set up with the initial Limited Partner’s children and/or grandchildren as the beneficiaries.

Step 5 – Transfer a percentage of interest in the FLP to the trust(s) set up in Step 4.

The final step is to transfer percentage of the interest in the FLP to the children’s trusts so that they become Limited Partners. Typically, this transfer is done by the initial Limited Partners as a gift, so depending upon the amount of the gift, a 709 Gift Tax Return may need to be filed by a CPA.

Initial Education and Ongoing Maintenance

At Waldron and Schneider, we know that it is important for our clients to understand how to properly use their FLP structure. Therefore, we meet with them multiple times during the process of completing Steps 1 through 5 to educate them about each of the steps, how to choose assets to transfer to the FLP, how to transfer assets, and how to properly use the FLP structure. We also prefer to meet with our clients annually to determine the assets currently in the FLP, review how the client is using the structure, and discuss any changes that need to be made. We often invite our client’s CPAs to these meetings because discussing and understanding the tax implications involved with an FLP is important, especially when determining how much interest to transfer to the children’s trusts and when to make the transfers.

It is also important to keep the FLP’s corporate books current. Therefore, we send letters to our clients near the end of the year to remind them to hold their annual meetings and to ask them to send us the meeting minutes or provide us the information we need to draft the meeting minutes for them.

If you are interested in learning more about the FLP structure and whether it may be an effective asset protection and succession planning tool for you, please call our office to schedule an appointment.