The Family Limited Partnership ("FLP") is a popular tool used by families to hold their business and investment assets. The FLP is often used by parents and grandparents as a vehicle to transfer assets to children and grandchildren during their lifetimes and at their deaths.
Utilizing an FLP allows you to do the following:
An FLP typically consists of two classes of partnership interests—general and limited. As the creator of your FLP, you may designate yourself as the general partner, retaining the general interest in the partnership, and thereby retaining control over the assets, which you transfer into the partnership. As general partner, you have the power to make and implement decisions regarding all partnership activities and operations.
The limited partners of your FLP (e.g., children and grandchildren), on the other hand, enjoy only limited powers with regard to the partnership. As limited partners, they generally have no voice in management or control over partnership interests, regardless of whether they purchased the interests or made contributions to the partnership in return for the interests. They are considered to be only passive investors in your FLP. They have little influence in how you choose to manage your FLP.
Through proper estate planning, you can significantly reduce the size of your taxable estate, which results in substantial estate tax savings. One way to achieve this estate tax savings is by gifting interests in your FLP during your lifetime to your children and grandchildren. Such gifts will help you reduce the size of your taxable estate while allowing you to keep the FLP assets intact and under your continued control.
Other benefits of using FLP to control and enhance your assets include:
The FLP is a valuable estate planning tool which you can use to enhance and protect the value of your estate, not only for your benefit, but for the benefit of family members and others, as well. If you feel that implementing an FLP will help you achieve your estate planning and asset protection objectives, you should consult with an estate planning attorney who can help put the benefits of an FLP to work for you.