Traditional Limited Partnerships & Family Limited Partnerships: Pros and Cons. A Look at Other Trusts, Foreign Deferred Compensation & Private Banks
Traditional Limited Partnerships | Traditional Limited Partnerships have been OVER-MARKETED as wealth transfer devises. Family Partnerships are RED FLAGS for the Internal Revenue Service for abusive tax-free WEALTH TRANSFERS. General Partners of Family Partnerships are exposed to frivolous lawsuits, court judgments, and creditor seizures. The problem is avoided if the FAMILY, LLC is the General Partner or the Family Limited Liability Company (FLLC) is substituted for the partnership. |
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What’s a Family Limited Partnership? (FLP)How assets are transferred amongst family members | A Family Limited Partnership is a standard partnership which includes only family members. Thus, the word “Family” Partnerhip. As in traditional partnerships, there’s a General Partner and Limited Partner. With the FLP, the parents are the General Partners, retaining 100% control over the assets and 100% of the liabilities from a potential frivolous lawsuit. The children as Limited Partners, are the silent partners with no control over the assets and no liabilities in case they get sued. Family partnerships have been widely over marketed as the “devise of choice” for transferring the “family business” and other highly appreciated assets tax-free from parents to their children. How it works: The older generation (parents) become 2% owners as “General Partners” in a Family Limited Partnership. Over a period of time, by “gifting” limited partnership interests, the children own 98% as limited partners. End result: Highly appreciated assets are effectively transferred from the estate of the “parents” taxable @ 55% plus state taxes, to the children ” tax-free.” The IRS considers these arrangements “abusive” when overzealous practitioners “over-claim” two commonly used discounts in the valuation of underlying (highly appreciated) assets in Estate Tax Valuations. The IRS comes down significantly hard when these arrangements are made over a “death bed.” The two valuations are:
Combined, these two discounts can amount up to 70% or even more. How much, is too much? Example of the ABUSE: You and your spouse own a piece of commercial real estate with a Fair Market Value of $2million. You and your spouse, “gift” (98%) of your real estate to the Family Limited Partnership (FLP) to your children as Limited Partners while retaining (2%) as the General Partners. Please note: as General Partners, you have retained 100% control and all the potential liabilities. Certain Practitioners – The IRS comes down hard if the arrangements are made over a ‘death bed’, so why wait? Promoters will have you believe that you have “just reduced” your taxable wealth by up to 70% or more of it’s value? From $2million down to $600,000 or less, while retaining 100% control? |
The problem with limited partnerships | The disadvantages of the Family Limited Partnership:
If you have an interest in FAMILY BUSINESS SUCCESSION PLANNING, please contact us, there are several available devises addressing the following important issues:
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Better asset protection/wealth preservation
What’s a Trust?
| We have a number of asset protection / wealth preservation strategies, elimination of probate, elimination of estate taxes, and other devises for deferring possibly reducing your income taxes. The ULTRA TRUST? meticulously crafted and financially engineered to hold your personal residence and all your other valuable assets with NO downside to your personal income tax return, form 1040 while insulating you from potentially damaging lawsuits. The MEDALLION TRUST? designed to implement your Gift Tax / Unified Estate Tax Credit LOOPHOLE of $675,000 or $1,350,000 jointly with your spouse. The VERTEX TRUST? for your deferral of Capital Gains Taxes, elimination of probate and all inheritance taxes while insulating you from potential frivolous lawsuits. The Family Limited Liability Company (FLLC). A much stronger financial devise than the partnership. There are there are NO General Partners with the Family Limited Liability Company (FLLC). General partners of a Family Limited Partnership have NO asset protection. The Foreign Deferred Compensation Plan defers “earned income” taxes on W-2 income or other (((income streams))) rents, commissions, royalties, day-trading, etc. The Foreign Private Bank properly capitalized, “class A” foreign bank is the equivalent to Fleet, BankBoston, BankAmerica. Anything that they can do, your Class “A” Foreign Bank can do. Practically a license to printing your own money. Not available to IRS defined US Persons. |
Helpful resources: Readers often continue with Asset Protection Trust, Revocable vs Irrevocable Trust, and official IRS estate and gift tax guidance while sorting through timing, control, and long-term protection choices.
What often changes the answer
After reviewing Limited Partnerships: General & Family Partnerships, many people want a clearer sense of how the answer changes once real life timing, funding, and control are added to the discussion.
What usually shapes the next step
- Timing matters because inheritance, divorce, and family transitions can change the right planning move.
- Control matters because the grantor, trustee, and beneficiary each affect how protected the structure really is.
- Funding matters because a trust only protects what has actually been transferred into it.
Where readers often continue
A practical next reading path is Beneficiary of Trust, Revocable vs Irrevocable Trust, and Grantor vs Trustee vs Beneficiary. When the question turns from reading to implementation, many readers move from these guides to a direct planning conversation.
Common questions about this article
These answers summarize the topic in plain English so readers can move from the article into the next practical planning page.
What is the main takeaway from "Limited Partnerships: General & Family Partnerships"?
Traditional Limited Partnerships & Family Limited Partnerships: Pros and Cons. A Look at Other Trusts, Foreign Deferred Compensation & Private Banks The concept of a trust was… The article is meant to give readers a practical understanding of the issue so they can connect the topic to planning decisions instead of treating it as an isolated legal phrase.
Who should read this article?
This article is usually most useful for readers who are trying to understand limited partnerships general and family partnerships before making a trust, ownership, or asset protection decision and want a clearer explanation in everyday language.
Why does this topic matter in broader planning?
Topics like this matter because one misunderstood issue can change how readers think about timing, control, funding, or exposure. Articles like this help turn a broad concern into a more focused next step.
What should readers compare after finishing this article?
Most readers go next to a related trust page, a comparison page, or another article in the same category so they can test the idea against a larger planning framework before deciding what to do next.
