Limited Partnerships actually originated way back from the time when European shipping businesses began to operate globally. That’s right. A very long time ago. The goal in creating these limited partnerships was to allow multiple individuals or businesses to invest in a venture without being liable for the operation of the venture. Asset Protection lawyers have been using them ever since.
They work like this. Lets say for example that you owned a merchant ship and needed to raise capital for an exploration to the New World, you would raise that capital by taking on investors. In the same way you would take on investors in modern times for a new venture. Obviously your investors would want to minimize their risk and exposure, same as today, so you would agree to take on the risk yourself, being an expert in your trade and the party in control of the venture. Similar to a real estate syndication. Thereafter, the limited partnership was born. The partners who agree to take on the risk is named the “General Partner,” while the investors are named the “Limited Partners.”
Modern days, limited partners exist as a creation of state statutes, and must be organized to the letter! Under most limited partnership statutes, the general partner has unlimited liability and full control of the partnership. The limited partners have limited liability and no control. The most a limited partner can lose is the amount of his or her investment.
A Family Limited Partnership (FMLP) operates the same way. The “Family” is really just a tax designation. This makes it attractive from an asset protection and estate planning standpoint. A standard FMLP will consist of a limited partnership that is wholly owned by a husband and wife, but don’t think that this is limited to just married couples. It is not. The husband and wife will own a majority of the limited partnership interest, either individually or through and LLC.
But, and this is a big but, the best feature of the family limited partnerships is that they can be used in conjunction with offshore truss to create bullet proof asset protection structures that you cannot set up otherwise with LLCs alone. It is the combination of the FMLP and a Foreign Asset Protection Trust or Bridge Trust working together that is where the magic happens.
If you want to learn more about how to properly use LLCs, LPs and Asset Protection Trusts we will be happy to answer any question. Enjoy this recent podcast where we break all these concepts down in detail. https://podcasts.apple.com/us/podcast/mindful-multi-family-show-76-chris-salerno-brian-t/id1478770123?i=1000487874678
Brian T. Bradley, Esq.
Senior Managing Partner
Bradley Legal Corp.
Asset Protection Law