Earlier this year, the New York Times discussed the value of Family Limited Partnerships to keep assets in the family, and how these strategies could be used or misused. The advice in the piece goes well with what asset protection attorneys would also advise clients.
Family Limited Partnerships can be used for estate planning or asset protection purposes, but these must not be used as a means to avoid taxes. For example, if you set up a Family Limited Partnership while a person is on his or her deathbed, it can be safely concluded that you have done so solely to avoid estate taxes. Make no mistake, the IRS will identify such activities, and there’ll be consequences to pay.
It’s the same kind of advice we give clients if we recommend using Family Limited Partnerships as a means of asset protection. These FLPs are not meant to be used as a means of saving taxes at all. That’s not what they’re for. They’re meant to help protect your assets and prevent creditors from getting to them.
However, for that, it is important that you go by the book as far as the IRS is concerned. That includes filing all necessary documents to make sure that your Family Limited Partnership is fair and transparent, and that you have nothing to hide. It is also important that your Family Limited Partnership function like a business, with regular meetings and audits.
In short, your Family Limited Partnership should be established in a professional manner. It’s not merely enough to stick the label of an FLP, and expect your assets to be protected.
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