Family Limited Partnerships in Texas

The use of limited partnerships in Texas for estate planning has been a popular and beneficial strategy employed by probate and asset protection lawyers for a number of years. While there is no legal or technical difference between a limited partnership and family limited partnership, the latter is simply a partnership compromised of related persons.

Practically speaking, the older members of a family typically serve as general partners while the younger family members acquire limited partnership interests. For example, a husband and wife might form an FLP acquiring all the general and limited interests of the partnership and then transfer their personal assets (real estate, stocks, bonds, etc.) to the partnership. Each year husband and wife might give away the limited partnership interests to their children.

Advantages of Family Limited Partnerships

As limited partnership interests are typically worth less then general partnership interests, the general partners can give away the limited interests at a discounted rate to the actual value of the assets in the limited partnership. For example, should general partners husband and wife have assets worth one million dollars transferred to the partnership, husband and wife could give away 10% of the limited partnership interests valued at $50,000 (as opposed to $100,000). Because limited partnership interests are valued at a lower rate then the actual value of the assets themselves, husband and wife can transfer substantially more of their wealth when giving away limited partnership units.

Summary

Family Limited Partnerships are a very valuable tool that can allow a family to pass assets to the younger members of the family with less tax burden. However, the IRS has scrutinized these type of partnerships in recent years. Remember that there must be an actual business associated with the partnership and assets should not be utilized for non business purposes or the IRS will ignore the partnership structure. It is important to use a competent business or probate lawyer to navigate some of the potential pitfalls of a family limited partnership. For many clients, an attorney can handle the formation of an FLP for an affordable flat fee. Feel free to use the form below to request a free consultation or call our office during regular business hours.