Overview for Transferring Assets to a Family Limited Partnership
There is a difference between what assets your limited partnership can
own, and what assets it should own. The limited partnership is not an
ideal entity to hold certain assets, although legally permissible. There
are many considerations when you select which assets to transfer to your
limited partnership. If the limited partnership has a specific business
purpose, then the limited partnership should own only those assets necessary
to fulfill that function. For example, a limited partnership organized
to develop real estate should not own unrelated assets, such as personal
investments. Obviously, you wouldn't use a limited partnership with
a number of unrelated partners to own your own assets. Here you would
invest only in proportion to your other partners — usually enough
cash or other assets to further the business or investment interests of
Your limited partnership can protect all, or a significant share, of your wealth:
- Stocks, bonds and other investments
- Real estate
- Antiques, art, and collectibles
- LLC memberships
- Intangible assets (copyrights, patents, etc.)
- Claims against others
- Notes/mortgages or other obligations due you
- Beneficial interests in trusts
- C corporation shares
- Other limited partnership interests
Your limited partnership should only own income-producing or appreciating
assets. This is ostensibly the reason for setting up your limited partnership.
Under S corporation rules, the limited partnership cannot own S corporation
shares. It also should not own annuities, because you may then lose their
tax deferral status.
Your limited partnership also cannot own IRAs or other retirement accounts;
however, your retirement account can invest its funds in your limited
partnership. This then protects your IRA funds.
Don't use a limited partnership to operate a business unless its general
partner(s) are LLCs or corporations, since the general partners would
be liable for the partnership debts. Use a corporation or limited liability
company to operate a business.
Also, don't title your home to a limited partnership. Your home is
not an investment or business related asset, and this could persuade a
court to disregard your limited partnership. You also lose two tax benefits
that are yours when you personally own your home; the deduction on mortgage
interest and the capital gains rollover. Still, some limited partnership
promoters recommend titling the home to a limited partnership. Generally,
that's poor advice. There are better alternatives for protecting your
home — equity stripping, or in certain circumstances, a single member
LLC or personal residence trust.
YES, YOU CAN LOSE EVERYTHING!
You may think that your wealth is safe and that you don't need protection.
But don't delude yourself and accept reality — for every 60
minutes you spend making money, spend 60 seconds thinking about how to