Family Limited Partnership (FLP)

A Family Limited Partnership (FLP) is a specific type of partnership designed primarily to manage family-owned assets while providing certain tax benefits and asset protection.

In an FLP, there are two types of partners: general partners and limited partners. The general partners manage the partnership and have unlimited liability, while the limited partners typically contribute capital but do not participate in management and have limited liability. Generally, family members are the partners in an FLP, where parents or older generations often serve as the general partners, and children or younger generations serve as limited partners.

One primary reason to establish an FLP is for estate planning purposes. By transferring assets into an FLP, the senior family members can gradually gift interests in the partnership to their children while retaining control over the assets and potentially reducing their estate tax liability. This gifting can also take advantage of the annual gift tax exclusion, allowing for significant wealth transfer without incurring gift taxes.

Another advantage of an FLP is its ability to offer protection against creditors. Since the limited partners have limited liability, their personal assets are generally shielded from claims against the partnership. This can be particularly beneficial in safeguarding family wealth.

For example, consider a family that owns a successful business and real estate. By creating an FLP, the parents can transfer ownership of these assets into the partnership, maintaining management control as general partners. They can then begin to gift limited partnership interests to their children over time, thereby reducing their taxable estate while teaching their children about managing family wealth.

It is important to note that the formation and operation of an FLP must comply with applicable laws and regulations, and careful legal and tax planning is advisable to fully realize its benefits. In Houston and surrounding areas in Texas, families commonly utilize FLPs for both tax efficiency and asset protection in their estate planning strategies.