What is a Family Limited Partnership (FLP)?
A Family Limited Partnership is an entity somewhat like a corporation. It is used to protect assets and keep them in the family. A certificate is filed with state authorities to bring the Partnership into existence. The Partnership has distinct identity and tax identification number. It can own assets and can conduct most activities that can be conducted by an individual or a regular corporation.
A Family Limited Partnership is a partnership between family members, and is used to facilitate asset management, asset protection, tax planning and gifting. Usually, the parents are the general partners and control the partnership. The children or grandchildren are the limited partners who receive gifts of partnership interests. This is a very popular and effective estate planning tool that allows the parent to reduce the estate tax value of an asset, while maintaining control of the asset and protecting the asset from the potential creditors of the children.
Family limited partnerships (FLPs) are a form of business entity that can be utilized to facilitate the transfer of assets. Ownership interests are divided into General Partner (GP) and Limited Partner (LP) shares. GPs maintain control of the entity even though they may own a small percentage of the total FLP. LP interests have ownership but no control. Because the LPs have no control over their interests FLPs often receive significant valuation adjustments when valued by appraisers. This allows the LP units to be transferred or sold at less than their full monetary value. FLPs also enjoy strong creditor protection and are therefore effective for family asset protection purposes.
