Wealth Preservation with an FLP

A family limited partnership (FLP) is a business or holding company owned by two or more family members. It is designed to preserve a family's wealth and pass it from one generation to the next while reducing or eliminating gift and estate taxes. Assets held in the FLP also receive some protection from creditors and lawsuits.

Partnerships

An FLP consists of two types of partners: general partners and limited partners. General partners typically own the largest share of the business and control asset management and decisionmaking. They may take a management fee from profits. Limited partners contribute capital and have limited or no role in day-today business operations.

How to Create an FLP

Creating an FLP involves several steps:

• Choosing the family members (partners) who will manage and own FLP assets;


• Drafting a partnership agreement specifying each partner's responsibilities and ownership percentages;


• Contributing assets, including investments, real estate, or business interests. The FLP then becomes the owner of the assets;


• Valuing the assets for tax purposes and establishing each partner's initial interest by employing an independent appraiser;


• Filing paperwork with the state where the FLP was established;


• Maintaining compliance by adhering to the terms of the partnership agreement and following all legal requirements.

FLP Disadvantages

FLPs are costly to set up and maintain. An FLP's limited liquidity can create problems during financial emergencies. There is also the risk of members incurring debt that impacts other FLP members.

Tax laws governing FLPs are complex. Families should consult a qualified tax professional, estate planning attorney, and financial professional before proceeding.