When it comes to estate planning and asset protection, one instrument that’s often overlooked is the Family Limited Partnership (FLP). This article provides an overview of FLPs under Missouri law, explaining their benefits, drawbacks, and key legal considerations.
1. What is a Family Limited Partnership?
A Family Limited Partnership is a form of limited partnership designed to centralize family business or investment accounts into one single family-owned entity. The FLP consists of two types of partners: General Partners, who manage the partnership and bear 100% of the liability, and Limited Partners, who are typically passive investors shielded from direct liability.
2. Benefits of a Family Limited Partnership
There are several reasons why families in Missouri opt for FLPs:
Asset Protection: FLPs protect the family assets from creditors. The personal creditors of a limited partner cannot directly reach the assets of the partnership.
Estate and Gift Tax Planning: FLPs allow for the gradual transfer of assets to younger generations while allowing the senior members to retain control. By taking advantage of annual gift tax exemptions and valuation discounts, significant tax savings can be realized.
Consolidated Management: FLPs centralize family wealth management, providing an effective vehicle for the family to pool their resources and invest together.
3. Drawbacks of a Family Limited Partnership
FLPs also have a few potential downsides:
Cost and Complexity: FLPs can be complex and costly to establish and maintain, requiring annual tax returns and ongoing administration.
Limited Marketability: Interests in an FLP are not as readily marketable as publicly traded securities.
4. Legal Considerations Under Missouri Law
Under Missouri law, FLPs are governed by the Missouri Uniform Limited Partnership Act. The Act outlines the procedures for forming an FLP, the rights and obligations of partners, and the rules for dissolution of the partnership.
In the case of an FLP, it is essential to maintain proper records, hold regular meetings, and respect the entity’s separate existence to preserve the liability protection the FLP provides.
5. Conclusion
A Family Limited Partnership can be an effective tool for managing and protecting family wealth in Missouri. However, its complexity requires careful planning and execution. Consulting with an experienced estate planning attorney can help you determine if an FLP is the right choice for your family’s needs.