The family limited partnership can be a very useful asset protection tool for some people. If you were to establish a family limited partnership, you would be the general partner. Members of your family would be added to act as limited partners. You as the general partner would have sole decision-making authority with regard to the actions of the partnership.
We will provide a hypothetical example to explain the advantages of a family limited partnership. Let’s assume that you are a real estate investor, and you own three different apartment buildings. You could convey each apartment building into a separate family limited partnership.
If an individual is injured in one of the buildings, and they want to sue someone for negligence, they would have to go after the owner, which would be the family limited partnership. Your personal property, and the other two apartment buildings, would be completely out of play. Plus, you can leverage your interests in the apartment buildings to limit the equity, so there would not be much to take.
There is asset protection in the other direction as well. If you or any of the general partners are personally sued, assets in the partnerships would be protected. In addition to the asset protection advantages, family limited partnerships can facilitate asset transfers among members at a transfer tax discount. This can be a huge benefit if you are exposed to the estate tax.