Is A Family Limited Partnership Or Trust Right For You?

Family limited partnership arrangements can be used as a way of limiting taxation on transfers within the family, and can form a valuable part of an overall asset protection strategy. The idea of using financial instruments such as trusts and corporate entities for the protection of wealth has been well known to the rich for centuries, but it becoming increasingly discussed among the mainstream of society. There is no doubt that it is is possible to set up arrangements which can give you a degree of protection against civil law judgments and taxation, although there are limits as to what can be achieved.

The basic idea of a limited partnership is to allow wealth to be transferred to another member of the family, without it incurring the full rate of taxation. If you just give someone a certain sum of money, it will be obvious what the value of that sum is, and easy to work out the tax liability based on that. If, on the other hand, an asset passes from one person to another, the asset needs to be valued so that the tax liability can be calculated. That valuation will always be a matter of interpretation to a degree.

It is important to realize that the amount of tax you can save through this mechanism is strictly limited, and that it is not something which can be endlessly repeated. If you have sizable assets you want to leave or transfer to your family, you may be better advised to look at standard trust arrangements. A trust can be set up in any jurisdiction, no matter where you live, and it can give you a far higher degree of insulation against both taxes and lawsuits.

It is also possible to invest any money which is transferred into a trust, whereas a family limited partnership is limited in this respect. It is far easier for an alleged creditor to pierce the arrangement of a partnership, for example in bankruptcy. It is not uncommon for creditors to actually become part of limited liability corporations or partnerships. A trust is a far more robust form of defense, and will be much harder for a creditor to penetrate.

In the end, the choice of whether to form a family limited partnership, a trust, or a combination of both entities is something which needs to be left to a trusted advisor. You can choose the jurisdiction in which you want to incorporate the entity, and you should choose this based on research you have carried out yourself, but the actual arrangements need to be made by a professional. There is no shortage of these in any jurisdiction which is attracting asset protection clients, and they will be quickly able to set up a trust or a family limited partnership.






 

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