Imagine this: Harold and Jane are a married couple on the verge of retirement; they have two grown children, one of whom is engaged to be married.  Harold and Jane own (jointly) the home in which they live… they also own a rental property—a small apartment complex—which they are ready to hand over to their children. Unfortunately, this scenario is not as easy as it might seem.  You see Harold and Jane worry that their son, although well-intentioned and smart, may not have the maturity to manage this kind of responsibility quite yet.  And although they trust their daughter completely they aren’t quite sure about her new fiancé. What are Harold and Jane to do?

Luckily, they have an option called a Family Limited Partnership which allows them to own property in partnership with each other, their children, or any other family member. Creating a Family Limited Partnership (or FLP or sometimes called FLIP) would allow Harold and Jane give both of their children an interest in the property income as limited partners, while Harold and Jane retain control over the financial decisions as general partners. As the kids gain maturity Harold and Jane can allow them more and more decision-making responsibility, or they can simply wait for the kids to inherit the general partnership when Harold and Jane pass away.

Another benefit to the Family Limited Partnership is that Harold and Jane are able to give partial ownership of the valuable property to their trusted daughter, while keeping it out of the hands of the questionable fiancé. Even if their daughter were to get married and then divorced, her ex-husband would have no claim on the apartment complex in the divorce because it was never fully the daughter’s asset. The most the ex-husband could possibly claim would be a portion of the income received by his wife, and Harold and Jane as general partners would have the power to decide how much income to distribute to each of the limited partners.

A very compelling side-effect of creating a Family Limited Partnership is explained very well by this article on MSN Money; dividing the ownership (and control) of a large asset lowers the value of the property for tax purposes.  One of the children could theoretically sell their interest in the property, but the value of that interest is low because the buyer would have no decision-making control over the asset.  Harold and Jane may also choose to have the income from the property go to the limited partners, retaining very little of it themselves, essentially lowering their income and placing them in a lower income tax bracket—something that might be appealing to Harold and Jane as retirees.

A Family Limited Partnership can give every family the options they need to protect their real estate (or other) assets, and the flexibility they need to keep the property in the family. An FLP might be exactly what your family needs—call our office and let us help.


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Tags: Asset Protection, Family Limited Partnership, FLP, New York real estate, Real Estate

This entry was posted on Monday, March 15th, 2010 at 10:32 am and is filed under Asset Protection, Family Limited Partnerships, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.