1. Ensure that a separate account is established and continuously maintained in the name of the FLP and that the assets in such account(s) remain separate from nonentity account (such as the general partners’ personal or trust accounts).
2. The general partner of the FLP should endorse all transactions involving the FLP.  No property should be added to an FLP without advice from competent legal counsel and completion of a Contribution Agreement which documents who made the contribution, what is its cost basis and what is its current fair market value.
3. Establish and maintain a separate capital account for each partner of the FLP.  Consult an accountant to establish maintain such accounts.
4. Conduct annual meetings on behalf of the partnership and discuss partnership transactions such as asset purchases and sales, leases, etc.  Such annual meetings should be documented in minutes prepared and signed by the general partners.
5. Maintain accurate records of FLP transactions as they occur and prepare an annual account of all FLP transactions for the given year to be maintained with FLP records.  Keep a current schedule of all partners and the number of limited and general units owned by each.
6. Engage an accountant to prepare the appropriate tax returns for the FLP (Form 1065).  Although the FLP is treated as a “flow-through entity”, these returns are informational type returns that are required to be filed accurately and timely.
7. Ensure distributions from the FLP are made to the partners in accordance with their respective partnership percentages.  Additions to the partnership should be made by the partners in accordance with their respective partnership percentages at the time of the addition.  The general partners must be careful to not convey any assets out of the FLP without first consulting with competent legal counsel.
8. Ensure personal obligations and expenses incurred by partners are satisfied from such partners’ personal nonentity accounts, never from entity accounts.
9. Ensure that the FLP entity remains active in its state of formation.  Such active status should be maintained by payment of registered agent fees and satisfaction of any state tax requirements (i.e., payment of franchise tax, filing of annual reports, etc.) on a timely basis.
10. If the FLP agreement requires, ensure that the general partner provides the appropriate FLP financial information to the limited partners, such as a balance sheet for the FLP, profit and loss statement for the FLP, federal and state tax returns, etc., as may be reasonably necessary for the limited partners to be advised of the financial status and result of operations of the FLP.  Limited partners may have reduced decision-making capacity with regard to the FLP; however, they are generally entitled to be apprised of the operations and maintenance of the FLP.
11. Partners of the FLP should be advised to retain a portion of their assets outside of the FLP (i.e., in their revocable trusts and/or individual accounts).  Such isolated assets should be used for their daily maintenance, expenses, gift giving, etc.
12. Ensure that the FLP is respected as a true business entity.  If the FLP engages in business transactions, all parties (family members included) to such transactions are required to abide by the appropriate transaction terms as evidenced in contracts, notes, etc.  For example, payments of interest and/or principal on a note should be paid when due and, if not so paid, the appropriate interest and/or penalties should be calculated and collected.

If you would like further information on this article or Family Limited Partnerships, please call Schober, Schober & Mitchell's Oconomowoc branch at 262-569-8300.