The Channel Islands are key jurisdictions for wealthy
entrepreneurs who are keen to preserve their family wealth for
Many individuals think of the traditional trust as being the
best way to manage their estate planning needs. However, in the
Channel Islands, there is a growing client base from civil law
jurisdictions unfamiliar with the trust concept launching
alternative structures. Recent examples include foundations,
private family funds and, increasingly, the Family Limited
Partnership (FLP). The name implies that it would be ideally suited
to the wealthy family but what is an FLP really and, in times of
austerity, why is it that we are seeing an increase in demand for
this more expensive "designer label" estate planning
THE BIRTH OF THE FLP
FLPs were developed in response to the significant tax
disadvantages when creating trusts that were introduced in England
and Wales by the Finance Act 2006. While initially developed
onshore, the concept of FLPs was also harnessed and developed
offshore in the Channel Islands as a flexible investment structure
and a viable alternative to the traditional trust due to its
ability to transmit wealth to younger generations while allowing
patriarchs to retain a sensible level of control. This is
particularly important for clients using the FLP to transmit the
family business or "golden egg", where a loss of control
is so unpalatable.
HOW DOES IT WORK?
An FLP is a contractual relationship, which is structured as a
limited partnership, and holds investments and assets often on
behalf of a wealthy family. There are two types of partners in FLP
structures - General Partners (GPs) and Limited Partners (LPs). GPs
are solely responsible for the management of the FLP and have
unlimited liability, whereas LPs invest in the FLP and enjoy the
benefits of limited liability. Conceptually, the GP role is akin to
a trustee and the LP is akin to an enfranchised beneficiary.
The patriarch establishes an FLP by transferring his assets into
the FLP and, in return, he receives FLP interests. These interests
can then be gifted to younger generations of the family, who will
be LPs, to provide income and capital entitlements for them in
accordance with their particular interest. This has the key
advantage of passing value down while still retaining management
conduct and control.
In order to ensure a satisfactory level of control, the
patriarch will often establish an FLP with one of his companies as
the GP. As the GP is the means of controlling the FLP and,
consequently, the devolution of the family wealth, the board of the
GP will usually consist of the patriarch and/or his key advisers
and family members (in a similar manner to Private Trust
Companies). Consideration should be given to establishing a purpose
trust or foundation, both of which are valid in Guernsey and
Jersey, to hold the shares in the GP to ensure the smooth
devolution of those shares in the GP following the death of the
older generation. The assets of the FLP are then held in accordance
with the Partnership Agreement and control can be built in to
protect the interests of young/spendthrift family members. As the
younger generation come on board, they will enter into an Adherence
Agreement promising to comply with the terms of the Partnership
FLPS COMPARED TO OTHER STRUCTURES
FLPs are more robust than the traditional trust and can (but do
not have to) have separate legal personality, providing a strong
asset protection structure whilst allowing patriarchs to retain a
significant element of control. FLPs can also be used to hold
assets that a professional trustee, with investment duties owed to
beneficiaries, may be reluctant to hold in a traditional trust, for
example, private company shares or 'toys'.
However, FLPs are not always as flexible as other estate
planning tools and rebalancing partnership interests to adapt to
changes in family circumstances is not always straightforward.
Costs can also be prohibitive for some clients. A figure of
£10 million is often cited as the asset level needed to make
the set up and ongoing administration costs viable - hence the
"designer label" status.
In the Channel Islands we are seeing a greater level of interest
in FLPs, perhaps due to tax advisers' recommendations or due to
the relatively recent availability of the orphan foundation
structure to hold the GP's shares. The law in both islands is
flexible enough to allow a very bespoke agreement to be put in
place to cater for the often very detailed and prescriptive demands
of clients who can afford and are used to having something tailor
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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