Family Limited Partnerships

A Family Limited Partnerhsip (or FLP) is a limited partnership operated by one or more family members.  An FLP has two types of partners: general and limited. The general partners (GPs) control all of the management or investment decisions and assume all of the personal liability for debts of the FLP.  The limited partners (LPs) are prohibited from any involvement in management decisions and have only limited liability for the partnership’s debts.  Typically, an FLP is created when older family members, like grandparents or parents, give assets to the FLP, take a small GP interest and a large LP interest, and then give away their LP interest to their children or grandchildren.

Why would you create a family limited partnership?

Older family members often want to reduce the assets in their estates so that their estates will not pay high estate taxes upon their death.  Older family members do this by transferring their assets into the FLP in exchange for LP interests, and then giving those LP interests to their children or grandchildren.  Because LPs have no control over management decisions, the value of these LP interests normally are less than the assets transferred into the FLP.  Older family members can also use the $13,000 annual gift-tax exemption to transfer LP interests to the younger generation..  FLPs also protect the assets from creditors of family members, since creditors cannot force distributions from the FLP without the approval of the GPs.  The FLP agreement can also require that, if a LP ceases to be a family member (for example, because of divorce), the FLP can buy back his or her LP interest at fair market value.

If you think your family could benefit by setting up an FLP, don’t delay, call us today at 508-316-3853 to schedule an appointment.