FEDweek

Keeping Assets in the Family

A family limited partnership (FLP) may help to coordinate family finances. Mom and Pop might create an FLP and transfer their assets into it. They could retain a 1 percent general partner interest and transfer a 99 percent limited partner interest to their children. As general partners, Mom and Pop will still make all the decisions regarding the FLP assets while the children learn how things work.

When an FLP makes sense: Say Ed and Grace Green have extensive holdings of securities and real estate. So do Ed’s parents, who are getting too old to manage their financial affairs. Pooling assets that need managing are one reason for creating an FLP. Another is inclusion of Ed’s children from a previous marriage, as limited partners. With complicated finances, an FLP can help with overall planning and strengthen family relationships.

When an FLP might not work: In another situation, Fred Black created an FLP to hold a beach house used as a vacation home. However, only one of Fred’s three children was willing to pay the expenses involved in maintaining the home. The FLP was dissolved, that one child wound up with the property, and Fred’s two other children want to receive gifts, too. For such reasons, primary residences and vacation homes may not be a good fit inside an FLP.