Family Limited Partnership

Family Limited Partnerships (commonly called FLPs) are frequently used to move wealth from one generation to another. Partners are either General Partners (GP) or Limited Partners (LP). One or more General Partners are responsible for managing the FLP and its assets. Limited Partners have an economic interest in the FLP, but typically lack two noteworthy rights: control and marketability. Limited Partners have no ability to control, direct, or otherwise influence the operations of the FLP. They can neither buy additional assets, nor sell existing assets, and they cannot act on the Partnership's behalf. They also substantially lack the ability to sell their interest, with one typical exception: transfers to immediate family members (spouse, siblings, and direct lineal descendants and ascendants). FLPs are partnerships limited to family members, hence the name. Family Limited Partnerships (commonly called FLPs) are frequently used to move wealth from one generation to another. Partners are either General Partners (GP) or Limited Partners (LP). One or more General Partners are responsible for managing the FLP and its assets. Limited Partners have an economic interest in the FLP, but typically lack two noteworthy rights: control and marketability. Limited Partners have no ability to control, direct, or otherwise influence the operations of the FLP. They can neither buy additional assets, nor sell existing assets, and they cannot act on the Partnership's behalf. They also substantially lack the ability to sell their interest, with one typical exception: transfers to immediate family members (spouse, siblings, and direct lineal descendants and ascendants). FLPs are partnerships limited to family members, hence the name. FLPs are typically holding companies, acting as an entity that holds the property (business interests, real estate investments, publicly traded or privately held securities) contributed by the members. FLPs have several benefits. They allow family members with aligned interests to pool resources, thus lowering legal, accounting, and investing costs. They allow one family member, typically the GP, to move assets to other family members (often children who are LPs), while still retaining control over the assets. Because the LPs have no rights of control, they cannot liquidate their partnership interest. The timing and amounts of distributions is the sole and exclusive prerogative of the GP. That is, a distribution cannot be made to one partner (GP or LP) unless all partners receive their pro rata portion of any disbursements. FLPs also allow for favorable tax treatment relating to the transfer of the assets, relating to the lack of control, and lack of marketability of LP interests discussed above. Taxes are paid on the fair market value of assets bought or given. Fair Market Value is the value that would be received (paid) to sell (buy) an asset between a hypothetical willing buyer and hypothetical willing seller, both acting in their own best interest and with reasonable knowledge of the relevant facts when neither is acting under compulsion.