Appendix K. Putting Personal Residences into an FLP or FLCC: A No-No

• Author: Jeffrey Robert Matsen
• Profession: Founder and managing partner of Matsen Voorhees Mintz LLP
• Pages: 117-118

117

APPENDIX

K

Putting Personal

Residences into an

FLP or FLCC: A No-No

The question of whether or not a personal family residence should be placed into a Family Limited

Partnership (FLP) or Family Limited Liability Company (FLLC) is a frequent topic for discussion. The

impetus for such a decision is based on the theory that the FLP or FLLC affords the owner a degree of

Asset Protection against personal liability—because a creditor is allegedly limited to a Charging Order

Remedy when trying to get at the assets inside the FLP or FLLC. A Charging Order limits the creditor

to a distribution right rather than granting it the ability to seize the assets itself within the FLP or FLLC.

Whether or not the Charging Order Remedy really effectively precludes a creditor from getting to the as-

sets of the FLP or FLLC is a question I have addressed in other sections of this book. In any case, a creditor

does normally have a more difficult time accessing assets that are inside an FLP or an FLLC than if they

are held in the owner’s individual name.

However, it would not appear that placing a personal residence into an FLP or FLLC will really work.

In the first place, a Limited Partnership or Limited Liability Company is supposed to have legitimate busi-

ness purposes and to be established for a profit. If you place a personal residence into the FLP or FLLC, it

would, therefore, appear that you would have to pay rent to the FLP or FLLC in order to make any busi-

ness sense of the transaction. In fact, placing the residence into the FLP or FLLC could engender several

adverse tax consequences, i.e., the loss of the capital gain credit on the sale and the state real property tax

exemption.

But, perhaps, the homeowner is willing to tolerate the adverse tax consequences in exchange for the

purported Asset Protection benefits. The problem, however, is that it is likely that the courts are going