What is a family limited partnership?
Family limited partnerships or FLPs (also know as family limited liability limited partnerships or FLLLPs) are a type of partnership designed to protect your family business and assets for future generations. FLPs can be used to reduce your overall estate taxes and gift taxes, which under current law are owed on estate assets in excess of $5.49 million per individual. For families that wish to preserve their business for grandchildren, an FLP can form a central part of your estate plan. If your family may face estate taxes, or if you are looking for a way to shield your family’s assets from creditors, our
Tampa family limited partnerships lawyer at Verras Law, P.A., can explore the details of FLPs with you and explain further how they may help to ensure your valued family business survives to future generations.
FLP Basics
A family limited partnership is a partnership controlled by members of your family. As with any other limited partnerships, an FLP will involve two types of partners: general and limited. General partners are tasked with controlling all management and investment decisions. General partners are also liable for any debts of the partnership. Limited partners, on the other hand, are not authorized to participate in management of the FLP and their liability is limited.
Most FLPs will be structured so that the parents or grandparents contribute assets in exchange for a general partner interest and a larger limited partner interest. They can then incrementally give a portion, or all, of their limited partner interest to a child or grandchild. The interest is often set aside in a trust for later use by the named recipients.
Benefits of an FLP
FLPs offer several distinct benefits over a traditional trust or a will. By transferring limited partnership interests to members of the family over time, the size of your taxable estate will be reduced significantly. This can allow wealthy families to minimize their federal estate taxes. Further, an FLP allows the general partner to still maintain control of their assets while remaining eligible for valuation discounts at the time of transfer of shares to the limited partners.
Limited partners, typically the creator’s children or grandchildren, also benefit from an FLP. FLPs are flexible, allowing the limited partners to eventually become general partners if the agreement is amended. Assets placed within the trust are generally protected from claims by creditors. Pooling the family’s assets into a family limited partnership can therefore shield the assets from debt collectors and the complications that can stem from divorce. Family business owners or any family with substantial assets that they wish to pass to the next generation should ask their estate planning attorney for more information about an FLP.