People often say that we live in a litigious society. Lawsuits are common, and people who like to sue others tend to seek out targets with deep pockets. As a result, certain people are particularly vulnerable to lawsuits.
Landlords who own rental property sometimes fall into this category. Tenants and visitors could potentially become injured on rented property, and legal actions can be initiated. Asset protection is very important for people who own investment property.
Physicians are also vulnerable, because malpractice suits can be financially disastrous. Clearly, some litigious types see doctors as targets who have something to go after, so asset protection is also important for physicians.
There are various different steps that you can take to protect assets for your own purposes, and you can also protect assets that you are leaving to your loved ones. One legal device that is often used for asset protection purposes is the family limited partnership.
Let’s look at the details.
Family Limited Partnerships
A family limited partnership is comprised of a general partner or partners, and limited partners. As the name would imply, the people in the partnership must all be in the same family. The general partner has complete control of the actions of the partnership. The limited partners do not have any say at all.
If one of the partners was the target of a legal action, assets that are held by the partnership could not be attached. This is one of the advantages that you gain when you create a family limited partnership.
There is also the matter of limited exposure. Let’s say that you own five different apartment buildings. You could place each apartment building into a different family limited partnership. As a result, if someone was injured on one property, the other property would be completely out of play.
A family limited partnership can also be useful if you have estate tax concerns. The federal estate tax carries a $5.34 million exclusion and a 40 percent top rate. If you intend to transfer more than $5.34 million, you must take steps to gain tax efficiency.
The estate tax and the gift tax are unified, so the $5.34 million exclusion is a unified exclusion. It encompasses lifetime gifts that you give along with the value of your estate.
In addition to this exclusion, there is also an annual $14,000 per person gift tax exclusion. You could use this exclusion to distribute shares in a family limited partnership on an incremental basis over a number of years. If you go this route, you are transferring assets in a tax-free manner while you reduce the taxable value of your estate.
Learn More About Family Limited Partnerships
If you would like to learn more about family limited partnerships, download our special report. This report is being offered on a complimentary basis, and you can access your copy through the Reports section of this website.