From a non-tax planning perspective, family limited partnerships have a variety of attractive attributes that may motivate use of this technique regardless of the tax benefits:
2.1.1 Asset Protection. A creditor of one of the limited partners should not be able to force a sale of the partnership assets. Creditors will be restricted to attaching (by a “charging order”) distributions, if any, otherwise going to the debtor/partner. Similarly because the limited partnership unit is separate, distinct property, a limited partnership interest should stay out of the mix divided upon a divorce in a State (such as Maryland) where the concept of “marital property” excludes gifts from consideration if the gift has not been blended into the common pot.
2.1.2 Portfolio Balancing. When the assets to be placed in a family limited partnership consist primarily of tradable securities, the retention of those assets in an entity such as a partnership will permit the portfolio to maintain its balanced character, as a whole. That belief would not be available if individual securities were gifted to a family member outside of the partnership. Additionally, by holding securities in one entity it may be easier to attract high caliber investment advisors and/or keep the attention of those advisors, whereas assets fragmented within the family may not produce the same result.
2.1.3 Management Training. By using the limited partnership form, the senior members of a family can introduce other family members to the responsibilities of asset management by having them participate as partners in a business venture without turning over direct control to them unless and until those family members become capable of taking over the management obligations.
2.1.4 Dispute Resolution. A partnership can provide for mediation and other alternative dispute mechanisms that will keep a family argument out of court. This is an attractive alternative given the costs and adverse publicity that could come from a court proceeding.
2.1.5 Other Benefits. A. partnership can reduce probate costs with respect to real estate located in other jurisdictions as no ancillary administration would be required. Also, the use of the entity facilitates an institutionalization and an enhancement of family communication on family business and investment matters. There are additional benefits as well.