A Family Limited Partnership (FLP) is a limited partnership made up of family members. The advantages of this kind of partnership are tax savings, asset protection, and asset control. FLPs allow general partners to transfer limited partnership interests to children, while still holding onto decision-making and distribution control over assets. Come tax time, transferred interests in an FLP count toward annual gift tax exclusions, so many transfers are not subject to gift tax. Further, since gifts of limited partnership exclude decision-making and control of the everyday running of the partnership, the value of these transfers may be eligible for discounts for tax purposes. Transfers of limited partnership interests also reduce the amount of the transferors’ taxable estate upon death, helping heirs pay less in taxes on the remaining estate.
FLPs also protect assets from future creditors and claims from former family members (such as ex-spouses). Creditors cannot control or access assets without the general partners’ consent, and the FLP agreement can require partnership interests to transfer back to the family in the event of divorce. In general, FLPs help families to build wealth and keep family businesses family controlled.