Family Limited Partnerships are an important tool when a family wants to transfer a business from one generation to the next. Essentially, it serves two purposes: it transfers the ownership without going through probate (because the older generation is still alive), and it leaves management authority with the older generation.
In essence, a Family Limited Partnership is nothing more than a limited partnership in which some or most of the ownership interest is transferred to the Next generation by way of a limited partnership interest. The older generation may even maintain a minority interest, but remain as the general partner(s).
There are many variations on the foregoing approach, but the key point is that limited partners do not manage the affairs of the partnership; that is only done by general partners. There can be complex variations on this approach that take into account particular estate planning objectives. However, the basic idea is to establish a way of transferring a family business before those in control have passed away. This is aimed at providing a better chance for the business to avoid disruption, and possibly outright destruction, if it were to be sudden transferred without adequate preparation, upon the death of the owner(s). It can also be a very effective planning tool to avoid excessive taxation relating to the transfer.
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