Family Limited Partnerships: A Practical Guide for Affluent Families
When you want to protect family assets, ease future taxes, and keep decision-making centralized, a family limited partnership (FLP) can be a powerful building block. For high-net-worth households—especially those 45+—understanding how an FLP works (and how it differs from a trust) helps you choose the right tool for your legacy.
What is a Family Limited Partnership?
An FLP is a legal entity that holds family assets—such as real estate, investment portfolios, or a closely held company. It has two roles:
General Partners (GPs): Run day-to-day operations and make key decisions.
Limited Partners (LPs): Own interests but don’t manage the partnership.
This setup lets the senior generation retain control while gifting or selling LP interests to the next generation—often at valuation discounts—potentially creating estate and gift tax advantages.
Why families use FLPs
Keep control where it belongs
As GPs, senior family members set strategy, manage distributions, and oversee investment or business decisions—aligning actions with long-term objectives.
Transfer wealth tax-efficiently
Gradual transfers of LP interests can reduce the taxable value of an estate. Over time, this can lessen estate and gift taxes while moving ownership to heirs.
Add a layer of asset protection
LPs generally have limited liability—typically capped at what they’ve invested. (Note: GPs can remain exposed to partnership obligations.)
Teach stewardship
Regular FLP meetings and reporting can help rising generations learn how to manage assets responsibly.
FLP vs. Trust: how they differ
Ownership and management
FLP: GPs manage; LPs own but don’t control operations.
Trust: A trustee manages assets for beneficiaries under instructions from the grantor.
Control and flexibility
FLP: Best when senior members want to retain active control while shifting economic ownership.
Trust: Excels at distribution control—you can specify when and how beneficiaries receive assets.
Tax angles
FLP: Potential for valuation discounts on LP interests to reduce transfer taxes.
Trust: Irrevocable trusts can remove assets from the taxable estate and may offer creditor protection; revocable trusts emphasize flexibility (with fewer tax benefits).
Asset protection
FLP: LP interests typically enjoy limited liability; GP interests do not.
Trust: Properly structured irrevocable trusts can place assets beyond direct creditor reach.
Planning focus
FLP: Suited to shared ownership of businesses or investment pools across generations.
Trust: Ideal for rules-based distribution, privacy, and probate avoidance.
Is an FLP a good fit for your situation?
FLPs can shine when families own income-producing real estate or operating businesses, want senior-level control, and value gradual, tax-savvy transfers to heirs. If your top priorities are privacy, avoiding probate, or tight control of distributions, a trust may be the better first step. Many affluent families use both—an FLP for ownership/management and a trust to hold LP interests and define beneficiary rules.
How FMD Wealth Advisors can help
Every family is different. FMD Wealth Advisors can:
Review your assets and legacy goals.
Compare FLPs vs. trusts (or a combined approach) for your needs.
Coordinate with your attorney and CPA on entity formation and funding.
Establish governance practices and a transfer plan for the next generation.
We translate complex estate structures into clear action steps—so your wealth is built to last and your wishes are carried out. Book your Free - Review Call here.
Disclosures: FMD Wealth Advisors LLC (“FMD Wealth Advisors”) is a Registered Investment Adviser.
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