A family limited partnership in Michigan may be one estate-planning device to protect your assets and ensure that your family reaps the benefits of your hard work. Many business owners use this arrangement to avoid probate and distribute finances both during and after their lifetimes.
State laws for such partnerships can be complex and particular. In order to understand how family limited partnerships work, it is helpful to understand limited partnerships more broadly.
Limited and general partnerships
A typical limited partnership requires at least one general partner who takes the lion’s share of the responsibility — running the business and claiming primary liability for the business’s losses. The limited partner can receive a share of profits with liability only for the amount he or she invested. The share of profits depends upon the agreement the partners establish together.
A limited partner contributes to the business financially but behaves more like a silent partner. He or she to a reasonable degree can participate in the business, often including limited capacity to act as a contractor or adviser, vote on certain measures and request official documentation on the status of the business.
Family limited partnerships
Forming a similar arrangement with family creates a family limited partnership. In Michigan, the terms of such an arrangement can vary broadly. When filing an agreement, the family makes decisions about the allocation of business responsibility, financial responsibility and profits. The law allows a nearly infinite number of ways to arrange this partnership.
There are many benefits to a family limited partnership. If planned properly, it can remove business assets from your estate for tax purposes and offer protection to family members from liability of the business. It also establishes a contract for distributing business profits in a way you choose.
Remember that limited partnerships require a general partner, so you will need to establish a business succession plan. Design your FLP carefully. It offers many benefits, but poor planning could have negative ramifications on your estate and family.