Family Limited Partnership (FLP)
A Family Limited Partnership (FLP) is a type of legal entity that is created to manage family-owned assets while providing potential tax benefits and facilitating the transfer of wealth among family members.
An FLP consists of two main types of partners: general partners and limited partners. General partners have full control over the management and operation of the partnership, while limited partners typically do not have a say in day-to-day operations but enjoy limited liability, meaning their personal assets are generally protected from any debts or obligations incurred by the partnership.
In an FLP, family members often contribute various assets, such as real estate, investments, or business interests, to the partnership. This structure allows families to keep control of the assets within the family, as general partners can dictate how the assets are managed and distributed. Additionally, FLPs can facilitate the gifting of partnership interests to heirs, which may help to reduce estate tax liability by transferring wealth during the partners’ lifetimes at a potentially lower valuation.
For example, a family might form an FLP where parents act as general partners managing a family business, while their children are limited partners. As the parents gift shares of the FLP to their children over time, they can gradually transfer ownership of the family assets while retaining control as general partners, thus achieving both control and a strategic estate planning approach.
Overall, a Family Limited Partnership can serve as a valuable tool for families seeking to manage and protect their wealth, while also planning for future generations.
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