A Family Limited Partnership (FLP) is a legal entity created by family members to own and manage assets collectively. It consists of two types of partners: general partners who manage the partnership and limited partners who contribute capital but have limited control over management decisions.
Key Features of Family Limited Partnerships:
- Ownership and Control: The senior generation typically serves as the general partner controlling management decisions and operations. Junior family members or heirs become limited partners, contributing assets to the partnership.
- Asset Protection: Assets placed within an FLP can benefit from protection against creditors, as limited partners generally have limited liability.
- Tax Efficiency: FLPs are primarily used for estate tax planning purposes because they can leverage valuation discounts and facilitate tax-efficient wealth transfer strategies.
Estate Tax Planning Benefits of FLPs:
- Valuation Discounts: Transferring assets into an FLP allows for discounts on the valuation of partnership interests. This is based on restrictions on control and lack of marketability typically associated with limited partnership interests, reducing the taxable value of assets for gift and estate tax purposes.
- Gifting Strategies: The senior generation can gift or sell limited partnership interests to junior family members over time, leveraging annual gift tax exclusions and the lifetime gift tax exemption. This gradual transfer can help minimize estate taxes on the assets transferred out of the senior generation's estate.
- Succession Planning: FLPs facilitate the orderly succession of family wealth and business interests by defining rules for management and ownership transitions among family members.
Creating a Family Limited Partnership:
Establishing an FLP involves drafting a partnership agreement that outlines the roles, responsibilities, and distribution of income and assets among partners. Working with an experienced estate planning attorney is crucial to ensure the partnership is structured correctly and complies with state and federal laws.
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For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.